Fee-Only vs. Fee-Based

The Financial Planning “Name Game”

How a financial advisor is compensated can directly impact the advice they give you. The majority of “financial advisors” earn some or all of their income from selling annuities, mutual funds, insurance, stock, or other financial products. Conflicts of interest are inevitable if any part of their compensation comes from sources other than YOU, the client, even if these salespeople are just charging a small fee for their advice. As more consumers have become aware of advisors’ compensation methods, advisors have increasingly adopted confusing terminology to obscure how they’re actually being paid.

What is the difference between fee-based, fee-and-commission, fee-offset, and commission?

The simple answer is not much! All of these compensation structures allow the financial advisor to earn some of their income from commissions on products they’re selling. “Fee-based” is the new term for “fee-and-commission” planners who get a small fee for developing a financial plan and then earn commissions from selling products. Some “fee-based” planners charge a management fee on assets, but they may also earn revenue-sharing fees, fancy vacations, and other compensation for promoting certain financial products. The term “fee-based” is very misleading, so be wary of those who use it. “Fee-offset” is when an advisor charges a fee for your plan, then reduces up to 100% of that fee to account for commissions earned from selling products. The problem with these compensation methods—whether you’re paying directly or indirectly—is your financial advice is being influenced by income an advisor is earning from sources other than the YOU, the client.

What is “Fee-Only” and how is it different from the rest?

“Fee-only” financial advisors are compensated solely by client fees; they do not accept commissions or compensation from any other source. In other words, fee-only advisors DO NOT SELL insurance, stocks, bonds, annuities, mutual funds, or any other product. This approach eliminates most conflicts of interest that commission and fee-based advisors have. Working with a “fee-only” financial advisor ensures all advice you receive is in your best interest. You can easily tell if a firm is “fee-only” by confirming they’re a Registered Investment Advisor (RIA) with the SEC or any state (rather than a “registered representative” of a broker-dealer). Sparrow Wealth Management is an independent RIA in Florida, California, Nevada, Pennsylvania, and Texas.

How are fees set?

We are a “fee-only” firm because we believe in providing advice that is ethical and focused on what’s best for clients. We charge a fixed, quarterly fee for financial planning. Our investment management fees are based on a percentage of the assets we manage. This means we have a strong incentive to minimize your trading costs and fund management expenses and to maximize your portfolio value. Our investment management fees can only grow when your investments grow.

Fee-Only Planning In The News

“Eighty-four percent of the advisors on our list [of America’s top 250 financial advisors] are fee-only planners.”

Worth, September 2001

“Financial Planners who take commissions have a built-in conflict of interest… my choice would be a fee-only planner.”

Newsweek, Jane Bryant Quinn

“A financial planner’s compensation should be from fees alone.”


For further information about financial advisor compensation, please read an excerpt from Don’t Get Burned by the Financial Planner “Name Game,” a publication of the Consumer Federation of America and National Institute for Consumer Education.