In an industry that is known for confusing people for material gain, it’s critical to understand exactly what a fee-only financial advisor is and why working with one matters.
In this blog, I’ll provide a clear, easy-to-understand explanation and highlight why fee-only advisors are the right choice over brokers.
But first, a little background
Hello, I’m Keith Hensley
As a flat-fee, advice-only financial advisor in Orlando, I work primarily with near-retirees and retirees. My goal is to help clients make confident, informed decisions about their money.
What Is Professional Financial Advice?
Let’s start at square one.
A financial advisor is someone who provides professional financial advice: a set of recommendations about what to do specifically regarding your personal financial situation, for which you pay a fee.
But not all advice is professional advice. Ask yourself:
- Did I pay for this advice?
- Was it specific to me, or a general statement that could apply to anyone?
- Did I pay for personalized recommendations derived from analysis, or just a product?
If the answer to all three is yes, you are likely receiving professional financial advice.
Examples: What Is…and Isn’t…Professional Advice
- Financial journalist writing about real estate trends → ❌ General guidance, not advice.
- Facebook group for retirees → ❌ Free opinions, not professional advice.
- Insurance agent selling a whole life policy → ❌ Product sale, not advice.
- Advisor creating a personalized financial plan for a fee → ✅ Professional advice.
What is a fee-only financial advisor?
If you take one thing from this blog, please pay attention to this important message.
The only type of acceptable financial advisor is an Investment Advisor Representative (IAR) who charges a fee – not a commission, but a fee. For this reason they are also called “fee-only advisors.”
But let’s back up even, from here.
- A commission a one-time charge that a salesperson receives from selling a product. A person who is compensated by commissions is a broker.
- A fee is charged for the provision of a service.
The critical distinction here is product vs. service.
Professional financial advice is a service rendered through a process; a product is not financial advice.
Why brokers are not acceptable to work with
When you work with a broker, you are paying for a product. A product is a product, an instrument, a security that trades on the market.
- A product is not financial advice, which his defined as a set of recommendations derived from an analysis of your situation.
- A product is not a financial plan.
- A product is not professional financial advice. A product is a tool that is used to complete the process of rendering financial advice; it is not the advice itself.
Many brokers might do an analysis for free in order to compel you to buy their product, but by the definition of financial advice you are not paying for a set of recommendations derived from analysis.
Again, just to be totally clear: If you are paying for a product, you are not getting professional advice, you are getting sold a product.
A broker works on transactions, not relationships. They may have a relationship with you, but the relationship does not entail ongoing monitoring of their products. So essentially it’s strung together and disconnected with no logical flow. They’ll never admit that, though.
They’ll say that it is beneficial to work with them this way, because it means that you don’t have to pay for the ongoing monitoring that happens in between product sales. Well, the assumption is that you don’t need help in between product sales because everything is hunky dory. But in reality there is no “highlight reel” for your life. They are just making you feel this is an appropriate way of working together, which it’s not, by downplaying the behaviors and decisions that influence your wealth. One-time products don’t make you rich; the decisions you make and the way you behave make you wealthy gradually over time.
Brokers want to influence you to overlook all that stuff. Don’t fall for it.
Don’t work with a broker. They are unacceptable.
You can find out if someone is a broker by searching for their name on the FINRA website.
Work with a fee-only advisor (not a broker)
To make it absolutely clear: You should ONLY work with a financial advisor who:
- Works at an RIA firm
- Is not registered with FINRA; is only registered with the SEC and not FINRA
- Is not a registered insurance agent in any state and does not receive commissions for the sale of policies
- Does not accept commissions for sales of investment products, even some of the time
If the advisor you are talking to does not meet the above stated criteria, do not work with them. Work with a fee-only financial advisor; this is the only type of financial advisor is it acceptable to work with.
A fee-only advisor is an Investment Advisor Representative (IAR) who charges a fee – not a commission, but a fee. They are registered with the Securities Exchange Commission or with their state regulator. If you meet someone who says they are a fee-only advisor, look them up on the IAPD site to see how they are registered.
Now, there is nothing to say that a fee-only advisor could not ruin your life. Any financial advisor could ruin your life, irrespective of how they charge. It’s up to you to filter them out In future blogs we will drill down further to talk about how you can tell if a financial advisor you meet is worth considering or not.
Putting it all together
Thanks for reading this blog clarifying what a fee-only financial advisor is.
Just for the purposes of full disclosure, I might be slightly biased on this topic because I am a practicing fee-only financial advisor. If you are seeking to work with someone like me, here’s more about how I help people.
As a flat fee and advice only advisor, we don’t earn a fee based on the amount of assets you have with us. Instead, we charge a flat fee that is based on the amount of resources and time required to serve you. We set it up this way so we can advise you on what to do with your 401(k) plan without you having to move any of the assets to our custodian. This is very different from how most other advisors operate. If you’d like to discuss us helping you with your 401(k) and financial plan, let us know.
Thanks for reading!
