If you are seeking out a financial advisor, you may have done a quick Google search and found that there are different subsections of advisors based on how they are compensated. So what exactly is the difference between a fee-only financial advisor, a fee-based financial advisor, and a commission-based financial advisor?
As it turns out, there is a big difference between these three types of financial advisors. And understanding the compensation structure of each financial advisor is a critical component to making the right choice for whom you choose to oversee your long-term wealth management strategy.
At Calamita Wealth Management, we are a fee-only wealth management company, focusing on providing wealth management solutions to individuals who are nearing retirement and thinking about the next step in their lives. We firmly believe that being a fee-only wealth management company provides our clients with distinct advantages, as we offer advice and strategies that are right for our clients and are not based on commissions.
Below we have outlined the different types of compensation for financial advisors and highlighted the benefits of being a fee-only financial wealth management company.
Compensation Structure For Financial Advisors
Financial advisors typically fall into one of three categories: fee-only financial advisors, fee-based financial advisors, and commission-based financial advisors. As the name suggests, fee-only financial advisors are compensated through a predetermined flat fee and/or percentage of investment assets managed, while commission-based and fee-based financial advisors are compensated at least partly through commissions earned from the selling of certain products and through certain financial transactions. In the case of Calamita Wealth Management, we charge a percentage of assets managed that ranges from .60% to 1.25%.
There is also a distinct difference between a fee-only financial advisor and a fee-based financial advisor. Fee-only financial advisors receive their compensation from fees paid from the client to the advisor without any hidden fees. Fee-based financial advisors also receive compensation in the same manner. However, in addition, they also sell commission based products.
Fiduciary duty sounds like a good thing, but what exactly does it mean? Simply put, a financial advisor who has fiduciary duty to his client has a legal responsibility to put the interests of his client before his own. This means that if your financial advisor is a fiduciary, he must act solely in your best interests or face legal consequences. A fiduciary must live up to clients’ trust in them through transparency and minimizing conflicts of interest.
Fee-based financial advisors are generally compensated by both commissions on the sale of certain products and fees for their advice, which typically includes guidance on which financial product the client should buy from them. In the case of a commission based advisor, they often receive fees from the companies whose products they sell. Be sure to ask the advisor if they do so that you are aware of all fees being paid.
The Benefits Of Working With A Fee-Only Financial Advisor
Fee-only advisors provide clients with comprehensive financial advice with your best interest in mind. In addition, they are required to conduct their business under a fiduciary duty, and many of them also carry professional designations that hold them to strict professional standards.
While a commission-based financial advisor may have a strong impetus to sell clients on products or financial services that will benefit the advisor, the fee-only compensation structure allows the advisor to operate with more transparency and regardless of the product recommended will receive the same fee. Commission and fee-based advisors may receive different compensation amounts dependent on the product they recommend.
We Are Here For You
Do you need a financial advisor that puts your interests before their own? At Calamita Wealth Management, we specialize in doing just that, and we are well versed in creating solid wealth strategies for our clients. Schedule an introductory phone call using our online calendar or reach out to us at (704) 276-7325 or todd@calamitawealth.com.
Todd Calamita Fee Only Network
National Association of Personal Financial Advisors
About Todd
Todd Calamita is the founder and managing principal of Calamita Wealth Management, an independent, fee-only wealth management company located in Charlotte, NC, serving people locally and across the country, that focuses on providing wealth management solutions to affluent individuals over age 50 and their families. Todd has more than 20 years of experience in the financial services industry and is passionate about helping people have a better life by designing and implementing customized financial plans that bring clarity and confidence. Todd is a CERTIFIED FINANCIAL PLANNER™(CFP®) and CERTIFIED DIVORCE FINANCIAL ANALYST® (CDFA®) and holds a Bachelor of Business Administration from Ohio University and a Master of Business Administration from the Weatherhead School of Management at Case Western Reserve University. He has authored a book, Plan Smart: Conquering 10 Common Money Traps, as well as numerous articles on wide-ranging personal finance topics, from taxes to retirement accounts. He has also been featured in a Financial Boot Camp TV series as a volunteer showing people how to make smart decisions with their money. When he’s not working, you can find Todd spending time with his wife, Teresa, and their two sons, Colin and Cameron. He enjoys rock climbing, swimming, and traveling, and he has a black belt in Tang Soo Do, a Korean martial art. To learn more about Todd, connect with him on LinkedIn.