Fee-Only Versus Fee-Based Financial Planners: What’s the Difference?Submitted by Moneywatch Advisors on March 23rd, 2018
Simply put, fee-only financial planners – like Moneywatch Advisors – are compensated by the clients they serve, no one else. As a result, their loyalty is to their clients and only their clients. Fee-based financial planners charge you and then are often paid a commission from a 3rd party company to sell you their products, too. So, where is their loyalty?
“Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice”, wrote David John Marotta in Forbes Magazine. Moneywatch is a FEE-ONLY financial planning firm that is required, by law, to provide advice to our clients that is always in THEIR best interest.
The whole fee-only versus fee-based debate is admittedly confusing and has been the subject of some debate in the last year or two as the U.S. Department of Labor issued a new fiduciary rule that requires that “brokers act in the best interest of their clients in their retirement accounts.” (The rule applied to stock brokers because they don’t act under that standard now) Amazingly, a lot of firms objected to that. I don’t know about you, but if someone I hired to help me refused to act in my best interest, I would tell them to pound sand and head for the door.
In fact, Jason Zweig of the Wall Street Journal wrote 19 questions to ask your financial planner/advisor and the 1st question was, “Are you always a fiduciary and will you state that in writing?” His correct answer is “Yes”, the same answer that Moneywatch provides to that question. His 2ndquestion was “Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services?” This time he suggests the correct answer should be “No”. Again, the same answer Moneywatch provides to that question.
“The stakes are so high in investing that you should consider fee-only planners. They’ll give you a fixed price up front for their services, regardless of the product they recommend. You won’t have to worry about conflict of interest”, wrote Clark Howard, the consumer expert and nationally syndicated radio show host.
When Bob Bova started Moneywatch Advisors in 1980 he was among the very first in the country to try a new approach to wealth advising – provide clients the help and advice that is in their best interest, not the advisor’s best interest. What a concept! Back then, the industry was dominated by stockbrokers and insurance salespeople, mostly men, that were paid by commission. In other words, they were paid when they sold you a stock or an annuity – regardless of whether that product would actually help you achieve your financial goals. Bob’s approach was vastly different. Coming from the world of stockbrokers, he knew there was a better way. So, Moneywatch was born with an objective to align the firm’s interests with those of the client – a fee-only financial planning firm.
In an effort to explain the difference, I will confess a minor transgression. As you probably know, my wife and I were clients of Moneywatch for 25 years before I joined the firm. However, several years ago I thought I’d take a little cash and see if I could do even better for myself than Moneywatch was doing. (Please don’t tell them) So, I took about $30,000 to a local firm that does not act as a fiduciary and invested some the way I wanted and some the way they recommended. The result: middling, at best. Over four years I earned a little less than 4% annually. Meh. My biggest complaint, however, is that I still don’t have a clue how much I paid them. Why? They don’t ever put their fees on their statements. More important, were they getting paid by someone else to recommend an investment to me? Who knows?
Now, this is a reputable firm and my contact is a good, honest person. They aren’t broken, their model is.