Fee-only, fee-based, commission: three questions to ask any advisor
The labels sound alike and mean different things. Three questions that tell you how an advisor is paid and whose interest comes first.
By Lucan Platt
6 min read
Fee-only means the only money an advisor receives is the fee you pay them. Fee-based usually means a fee plus commissions on some products. Commission-based means most income comes from the products you buy. All three can be legal; they put different pressures on the advice.
1. Are you a fiduciary at all times, for all of my accounts?
A registered investment adviser owes you a fiduciary duty under federal law: your interest first, and conflicts disclosed. Some advisors act as fiduciaries for one account and as salespeople for another. Ask for the answer in writing.
2. How will you be paid, in dollars, this year?
A percentage of assets, a flat fee and an hourly rate are all reasonable. What matters is that you can see the total. Ask for an estimate in dollars and ask whether anyone else pays the advisor, such as a fund company or an insurer.
3. Where is my money held?
Your accounts should be in your name at an independent custodian, with statements sent to you directly. The advisor should have authority to trade and to deduct the agreed fee, and no ability to move money out to anyone but you.
Read the brochure
Every registered adviser files a Form ADV. Part 2 is a plain-language brochure about fees, conflicts and disciplinary history, and Form CRS is a two-page summary. Both are free at adviserinfo.sec.gov. Ours are linked from our legal page.
Questions about your own plan, a rollover or a beneficiary form? An advisor reads every message.
