What is a Fee-Only?
What Is a Fee-Only Financial Advisor?
Is your advisor recommending an investment because it gets you closer to your goals, or because it pays them a commission? It’s a fair question, and most people have no easy way to answer it.
Financial advisors are paid in one of three ways: commissions, markups, or fees. Only one of those models consistently puts your interests first. Understanding the difference is one of the most important things you can do before trusting someone with your financial future.
The Three Ways Financial Advisors Get Paid
Commissions
Most financial advisors are paid, at least in part, through commissions. When you buy an annuity, a life insurance product, or a Class B or C share mutual fund, a commission is often built into the product's cost rather than itemized on a bill. Surrender charges, technically called "contingent deferred sales charges," exist largely to help the company recoup the commission it already paid your advisor. Because commission-based advisors earn more when you buy something, there's an inherent incentive to recommend products, not just advice.
Markups
If you buy bonds, CDs, or new stock issues through a broker, you're typically not charged a commission; you're charged a markup. It works like retail pricing: the firm buys in bulk and sells to you at a higher price. For new stock issues, the markup is disclosed in a prospectus, though good luck finding it easily. For bonds and CDs, it usually isn't disclosed at all. Like commissions, markups can create an incentive to sell you more than you need.
Fees
A fee-only advisor is paid directly by you, in a way you agree to upfront. That might be a percentage of assets managed, a flat fee, or an hourly rate, but in every case, you know exactly what you're paying and why before any work begins. Fee-only advisors are also required to register as Registered Investment Advisers, which holds them to a fiduciary standard rather than the lower suitability standard that applies to many commission-based advisors.
Fee-Only vs. Fee-Based: They Are Not the Same Thing
This is one of the most common points of confusion in the industry, and the confusion isn’t an accident.
“Fee-based” sounds like “fee-only,” but it isn’t. A fee-based advisor can charge you a fee and still collect commissions on the side, often through products like Class C share mutual funds or wrap accounts. Dually registered firms, meaning firms registered as both an RIA and a broker-dealer, create a similar problem: without a clear separation between their two roles, it’s difficult to know which standard applies to any given recommendation.
A true fee-only advisor is paid only by you. No commissions, no markups, no third-party payments of any kind.
Why It Matters
At Oak Street Advisors, we’re fee-only because we believe you shouldn’t have to second-guess our recommendations. We’re not paid by product companies; we’re paid by you, which means your goals are the only incentive in the room.
Want to Learn More?
We’re happy to walk through exactly how our fees work and answer any questions about what fee-only means for your specific situation. Schedule a no-cost introduction call at either our Myrtle Beach or Mt. Pleasant office, or meet with us online if you’re non-local or just short on time.
