Invest Financial Planning

The Pros and Cons of Fee-Only Financial Planning

Mark Berger  |  February 11, 2021

Looking for a financial planner, but unsure whether to choose fee-only, fee-based or commission-based? Here’s a guide.

When you’re searching for the right financial planner, you’ll come across a variety of compensation methods. There’s fee-only, fee-based and commission-based. Knowing which to choose can be confusing, which is why I put together a comprehensive list to help my clients (and you!) understand your choices. 

What Are The Different Types Of Financial Planner?

It’s important to understand what a fee-only financial planner is as compared to a fee-based or commission-based financial planner. All three can vary in terms of payment and transparency. We have a full rundown at HerMoney here, but here’s a quick guide:

  • Fee-Only: A fee-only financial planner is a practitioner that clearly defines the amount to be paid. Typically, this is an agreed-upon rate: either a percentage of assets, fixed hourly rate, or fixed charge per task such as a financial plan or strategic tax analysis.
  • Fee-Based: A fee-based financial planner is very different than a fee-only financial planner, despite sounding similar. A fee-based financial planner again has access to the visible fees of a fee-only planner; however, other types of commissionable style investments are intermixed. This means it’s not always transparent how the consumer pays for advice. With a mix of methods, misunderstandings and confusion can occur if not disclosed and explained properly. 
  • Commission-Based: Commission-based financial advisors only make money when they sell you something. Therefore, it’s more of a transactional-style relationship than an ongoing collective partnership.

Pros of Fee-Only Financial Planning

  • Transparency: You want to know where your money is going. Fee-only financial planning does just that. In fee-only financial planning, your financial planner will only be paid the mutually agreed upon amount, increasing transparency and improving your relationship with your advisor. 
  • Alignment of Interests: You and your advisor should be on the same team. Since your advisor knows the agreed upon rate, they are incentivized to invest in relationships with their clients. This includes reducing internal expenses and encouraging more proactive recommendations, opportunities and protection against risks.  
  • Independence: Fee-only financial advisors are more likely to be independent and not answer to mega bank motherships (i.e. not filling sales quotas). It is important to ensure your financial planner has your best interests at heart and not subject to corporate profits. Independent advisors can typically choose from a wider array of investments, leading to greater access in making your best and strongest possible investment portfolio. 

Cons of Fee-Only Financial Planning

Occasionally, certain types of products can only be purchased in the traditional commission style. These examples include life insurance and certain types of limited partnerships and other atypical types of investments. However, the number of products that fall into this category are rapidly decreasing due to regulators and consumer pressure. 

Get the Financial Planning Help You Need

Regardless if a firm is fee-only or not, it’s important that people find a financial planner that is individual to them: one who is not only capable of offering guidance through difficult situations but is also understanding and approachable. Fee-only financial planning supports the process and functions by design as your advocate. 


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