Fee-only advisors receive their compensation from clients, without product commissions. Fee-based advisors charge fees and can also receive commissions.
Neither label tells you:
- Whether the price is flat
- Whether tax filing is included
- How good the advice will be
It tells you where to look for incentives and costs before hiring someone.
What is the difference between fee-only and fee-based advisors?
| Question | Fee-only | Fee-based |
|---|---|---|
| Who pays the advisor? | Clients only, no sales pay | Clients, plus possible commissions |
| How is the fee set? | Hourly, project, subscription, flat, or % of assets | Same, plus possible sales pay |
| Promises a low price? | No | No |
| Defines the services? | No | No |
| Ask next | What do I pay? What conflicts remain? | What do I pay? What else pays you? |
Flat fee answers a different question: how your charge is calculated.
NAPFA’s explanation of fee-only advising describes those payment methods. The CFP Board’s compensation standards also address the professional, the firm, and related parties, not only the person sitting across from you.
What does fee-based mean?
Fee-based generally means the professional can receive both client fees and sales-related compensation. CFP Board calls this “fee and commission”, a phrase that makes the distinction easier to see.
So a recommendation may affect how much the professional or an affiliated business earns. Ask:
- Who pays?
- How much?
- Would choosing a different product change that payment?
Fee-only advice can have conflicts too:
- Paid by assets: an advisor may have a financial incentive to keep money in the managed account rather than have you use it to pay down debt.
- Paid hourly: the professional is paid more for additional hours.
The question is how the conflict is explained and handled.
Does fiduciary duty settle the question?
A fiduciary obligation is a duty to act in the client’s best interests. It does not mean the professional has no conflicts or that every service is covered by the same agreement.
CFP Board requires CFP professionals to act as fiduciaries when providing financial advice. The SEC’s interpretation of investment-adviser duties explains the duties of care and loyalty within an advisory relationship.
Check the paperwork:
- Review the firm’s Form ADV and Form CRS where applicable.
- Use FINRA BrokerCheck for brokerage history.
- Confirm the sales conversation, disclosures, and engagement agreement agree on fees, roles, and services.
Tax-aware investing, year-round tax planning, and preparing a tax return are different jobs. A compensation label does not tell you which of them you are buying.
Nino illustrates another distinction: you can choose AI software alone or software + services.
- Software helps you work through financial questions yourself.
- Services add a human CPA and financial planner team for your financial plan, tax planning and filing, and follow-through.
Compare the option that includes the work you want someone to do.
What should you ask any financial advisor?
- What will I pay in dollars this year? Include planning fees, investment-management fees, fund expenses, commissions, and any separate tax-preparation bill.
- What changes the price? Ask about a larger portfolio, more meetings, another filing state, a business, or an equity transaction.
- Can you, your firm, or an affiliate receive commissions or referral payments? Ask for an example relevant to a product or service you might use.
- When are you acting as an adviser, broker, or insurance agent? Ask which agreement covers the work in front of you.
- Which tax services are included? Get separate answers for planning, return preparation, and responding to notices.
- Who follows through? Confirm who receives updates, recommends changes, coordinates with other professionals, and checks that deadlines are met.
- What happens if I leave? Check cancellation terms, refunds, account transfers, and access to plans and documents.