By Carl Lachman, CFP®, MBA

You Are Asking the Right Question

Perhaps you learned the hard way that your financial advisor was just a glorified salesperson. Or, maybe you discovered that your advisor wasn’t required by law to put your interests before their own. Or, maybe you have never used a financial advisor before, but retirement is coming and a good friend gave you some good advice. Whatever the case, you are asking the right question: Where do I find a fee-only financial planner?

You Are Ahead of Many

Not everyone understands what “fee-only” means when it comes to financial advisors or planners, but you do. This is important information that will help you significantly. Most people do not understand that the average financial advisor is getting paid in various, confusing ways, many of which cause them to think of themselves first and their clients second.

The reason for this is that most of them work on commission. They get paid if they sell an investment, insurance policy, or annuity to a client. Are they selling it to you because it is the best thing for you, or are they selling it to you because it is the best thing for their income?

A fee-only financial advisor is paid in only one way, which is the fee they charge their clients. They send their clients an invoice, and the client pays the invoice. Up front. Clear. No tricks. A fee-only advisor doesn’t get any compensation any other way from any other source.

“Fee-Only” Is Not A Regulated Term

Unfortunately, most of the words that people in the financial industry use to describe themselves are not regulated. So, they call themselves “financial advisors,” “wealth managers,” “investment consultants,” etc. The list is very long.

They also use a lot of different words to describe how they get paid, such as “fee-only,” “fee-based,” “retainer model,” “hourly advising,” “set fee,” “asset-under-management fee,” “commission-based,” “project fee,” etc. What do all of these words mean? It can be very confusing.

Starting in 1982 in Atlanta, the Society of Independent Financial Advisors considered a variety of terms to try to describe the financial planning they were doing, which did not involve sales commissions. Then, in 1983, they decided on the term “fee-only” and started the organization the National Association of Personal Financial Advisors (NAPFA).

Since then, the advisors of NAPFA have been the only financial advisors that were strictly fee-only, and they have been the primary force promoting the term “fee-only.”

It’s More Common Now

In the beginning, it was rare to find financial advisors that called themselves “fee-only.” Very few advisors can trace the history of their firm to the early 1980s. My firm, Eclectic Associates in Fullerton, California, is one of the few firms that can do so, and we have been fee-only since our founding in 1984. Our founders were, in fact, a few of the first members of NAPFA.

Today, even a basic Google search for “fee-only” will bring up the correct definition of the term that NAPFA originally intended, of financial advisors that get paid only one way and do not receive commissions, referral fees, transaction fees, trailing fees, etc.

Other Online Searches

Online searches can be very helpful in finding a fee-only advisor. The easiest way to start is with the search engine Google, but there are also websites like www.napfa.org that will help you.

Remember, many of the first listings in search results are paid advertisements, so they are not necessarily what you are looking for. Also, Yelp.com listings, while sometimes helpful, usually contain listings that are paid for. They aren’t a true representation of what is available, so don’t get fooled.

You might find advisors listed at the Financial Planning Association (onefpa.org) or Certified Financial Planning Board (cfp.net) websites, but bear in mind that not all members of these organizations are fee-only. NAPFA stands alone as only allowing membership to fee-only advisors that strictly adhere to the correct definition. There is even a fee-only advisor website, www.feeonlynetwork.com, but it lists only advisors that pay to be listed, so it is incomplete and doesn’t necessarily show the fee-only advisor down the street from you.

Just Ask the Question

Many of us were raised to understand it was rude to ask how much someone was paid at their job. But, when it comes to hiring a professional to do work for you, you need to ask them how they get paid and you need to understand their answer.

If you don’t understand what they are saying, keep asking until you do. You want to make sure they don’t get paid any sales commissions, they don’t get paid by any of the investments they recommend, and they don’t get paid when a transaction occurs.

All of these situations will tend to cause conflicts of interest that may put their interests before yours. A financial advisor that is fee-only will explain clearly that they get paid one way, by their clients.

A Couple of Other Things

You have a few other things to look for when searching for a fee-only advisor. The first is to understand that being “licensed” in the financial world means that a person is licensed to sell you something. It is not really the positive thing you may think. Most fee-only financial advisors are registered with the U.S. Securities and Exchange Commission, but they are not licensed.

Second, most fee-only advisors are held to the “fiduciary standard.” A “fiduciary” is someone that is held to the legal requirement of putting their clients’ interests before their own interests.

Surprisingly, exceedingly few of the licensed advisors are held to this standard. They are not legally required to put their clients’ interests first. But, most fee-only advisors are fiduciaries and must legally abide by this requirement. So, by looking for a fee-only advisor, you are on the right track.

Finally, make sure the advisor you are considering using hasn’t been in any trouble. Disclosures are made a couple of places online if an advisor has been convicted of wrongdoing, been investigated, had disputes with customers, had a personal bankruptcy, etc.

Start by searching “broker check” on Google and then looking up your advisor’s name at the Financial Industry Regulatory Authority (FINRA) site. Although most fee-only advisors are not brokers, you can look them up at FINRA to see if they have been in trouble.

If an advisor is a broker, you will get history about them at FINRA, but if an advisor is a “registered investment advisor,” you will be transferred to the SEC.gov website to see their information.

Schedule a 15-minute discovery call with a fee-only financial advisor to discuss your personal situation.