Fee-Only financial advisor

Fee-Only financial advisors in the USA, as defined by the review materials for the Certified Financial Planner exam and the National Association of Personal Financial Advisors, are compensated solely by the client, typically achieved through a combination of hourly fees (including retainers), financial planning fees, and asset management fees. Neither advisors nor affiliates may receive commissions, rebates, awards, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the individual’s planning recommendations. [ [http://www.napfa.org/faq/index.asp#FAQ22 NAPFA - The National Association of Personal Financial Advisors - FAQs ] ] The fee-only model of compensation reduces the potential for conflicts of interest between the advisor and the client in that the advisor is not beholden to insurance companies, particular investments, and other financial companies.

A fee-only advisor "may" reduce conflicts of interest such as:
*an incentive to generate commissions through the unnecessary buying and/or selling of securities (also known as churning).
*an incentive to convert non-cash assets such as real estate and collectibles to cash and securities so that the advisor can generate a commission.

Working on a fee-only basis allows the advisor to:
* Customize an investment portfolio that is designed to help the client realize short-term and long-term investment goals.
* Provide simplified performance reporting, making it easy for clients to monitor their accounts.
* Support the client with ongoing professional advice, timely information about accounts and updates on the world’s financial markets.
* Manage a client's portfolio and make investment changes--without commissions--as your objectives or the economic climate changes.

It is worth noting that:
* Operating on a fee-paying basis may make the advice too expensive to obtain for the broader market otherwise catered for by commission-based advisers. If a client must pay a flat fee of $1000 to his adviser as a lump sum, this is less manageable for all but the wealthy, rather than the more manageable option of paying through regular charging and commissions. However this is not to say that fee-only is more expensive than paying by commission; commissions earned by brokers can add up over the course of a year, especially if many changes are made. It is worth noting that many fee-only advisors charge an annual fee that is deducted on a quarterly basis.
* On the other hand, if an advisor charges a flat percentage (e.g. 1% of total assets under management) for all clients, the advisor may not be able to afford to service clients below a minimum net worth.
* Asset based advisors may have the prerogative of managing all of a client's manageable monies. Although this is a particular bias for asset-based advisors, this can also lead to a more streamlined and efficient working relationship and service.
* While fee-based advisers cannot accept commissions, they may still have personal favorites amongst product providers and investment houses that lead to one provider being specifically favored over another when competing advice is given.
*If certain restrictions are not in place, there can be an incentive to take too much risk in a portfolio to generate additional gains that translate into "raises" for an asset-based advisor.

ee also

* Registered Investment Advisor
* Certified Financial Planner
* Financial planner
* List of Securities Examinations


External links

* http://www.napfa.org

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