Whether you just inherited an unexpected sum of money, you’re looking to buy a home, or you’re figuring out how to set aside money for retirement—there are plenty of reasons to hire a financial planner. And when it comes to finding the right financial planner for you, the last thing you want is to get ripped off. The difference between you finding someone you trust and getting misled could come down to one key term: Fee-based versus fee-only financial planners.
Here’s what to know about the difference betweenfee-based and fee-only financial planners—and how to make sure you trust the right advisor.
Who can call themselves a financial planner?
First off, as we’ve previously covered, not every financial advisor can call themselves a Certified Financial Planner® (CFP). A qualified CFP is a professional who’s certified by the Certified Financial Planner Board of Standards, Inc. CFPs have a fiduciary duty, meaning they’re legally required to act in your best interest—and this is where the difference between “fee-only” and “fee-based” comes in.
What’s the difference between “fee-only” and “fee-based” advisors?
Fee-only planners act as a fiduciary and are compensated only by their client (you). They cannot accept third party commissions.
Fee-based advisors, however, are paid not only by you but via other sources, such as commissions from investment products. They’re incentivized by investments that pay them more, and therefore have conflicts of interest. If you see someone advertising their services as “fee-based,” they’re hoping you confuse them with fee-only planners.
How to choose the right financial planner for you
If you’re stressed about the world of difference that rests on the one-word difference between fee-only and fee-based, don’t worry. Here are some additional methods to vet a financial planner before trusting them with your money. These tips come from certified financial planner and personal finance columnist Liz Weston in Oregon Live:
- Interview multiple candidates. You aren’t tied to the first planner you find. Before committing to someone’s services, ask them about how they’re paid and what you can expect from both their upfront costs and the cost of the investments they recommend to you.
- Know the right questions to ask. Like we covered above, you want to make sure your financial planner has a fiduciary duty to act in your best interests. Ask about their qualifications and experience, including whether they typically advise clients similar to yourself.
- Do your own background check. Check a certified financial planner’s status at cfp.net/verify-a-cfp-professional and check their backgrounds at BrokerCheck.finra.org.
If there’s one takeaway here, it’s to disregard fee-based advisors and go with the fee-only financial planners who are required to put your interests first.