The short answer
A fee-only advisor is paid only by their clients. A fee-based advisor charges client fees and may also earn commissions or other pay tied to products they recommend.
The names sound almost identical, which is why they get mixed up. The most reliable way to know how any advisor is paid is to ask, then read the answer in their Form ADV.
What “fee-only” means
Fee-only means the advisor’s compensation comes solely from fees the client pays directly. The advisor does not accept commissions, and does not receive payments from the companies behind the products they recommend.
Fee-only advisors may charge in several ways:
- An hourly rate for a one-time session or plan
- A flat project fee
- A monthly or quarterly subscription for ongoing advice
- A percentage of assets the advisor manages
N Financial Plans is a fee-only, fiduciary firm. We accept zero commissions and sell no products. You can see how our packages are priced on our fees page.
What “fee-based” means
“Fee-based” is a marketing label, not a single regulated category. In practice it usually describes an advisor or firm that charges some client fees and also earns money in other ways, such as commissions when a client buys a particular product.
That does not make a fee-based advisor a bad choice automatically. It does mean there is more than one source of pay, and so more questions to ask about how recommendations are made.
Fee-only vs fee-based at a glance
| Fee-only | Fee-based | |
|---|---|---|
| Who pays the advisor | Clients only | Clients, and often product providers |
| Commissions | None accepted | May be earned on some products |
| Where to confirm | Form ADV Part 2A, Item 5 | Form ADV Part 2A, Item 5 |
| Main question to ask | How are my fees calculated, and what do they cover? | What else are you paid, and by whom? |
What is a fee-only financial plan?
A fee-only financial plan is a written plan prepared for a fee that you pay, rather than one funded by selling you something. It typically looks at cash flow, savings, retirement, taxes, insurance, investments, and estate planning together, then lays out suggested next steps.
Because the planner is not paid based on which products you choose, you can act on the plan with the providers you prefer. Fee-only does not remove every conflict of interest, though. A fee based on a percentage of assets, for example, can create an incentive to keep assets under management. Every pay model has trade-offs worth understanding.
Fee-only and fiduciary are not the same thing
Fee-only describes how an advisor is paid. Fiduciary describes the legal standard of conduct the advisor follows. An advisor can be one without the other, so it helps to ask about both. We explain the second term in our guide to working with a fiduciary financial planner.
How to check how an advisor is paid
- Ask directly: “Are you paid in any way other than by me?” Ask for the answer in writing.
- Read the firm’s Form ADV Part 2A, which describes fees and compensation. You can search for it at adviserinfo.sec.gov.
- Ask for an all-in estimate of what you would pay in a typical year, including any fund or platform costs.
- Compare at least two advisors using the same questions so the answers are easy to line up.
