Typically, advisors are compensated in one of three ways:
All members of the Orange County Financial Advisors Network are fee-only and that isn’t a happy accident. It’s a big part of who we are and a core belief about how to serve clients well.
Commission-only advisors (i.e., stockbrokers) are paid when they sell a financial product. Any financial advice that they provide is often tied to the fact that they get paid for selling these products, whether or not they’re the right financial products for your unique situation.
Commission-only advisors are held to a standard of suitability, which means the products they recommend must be generally reasonable for the client and situation. They’re not required to disclose the amounts of their commissions to their clients, nor are they required to disclose conflicts of interest that may influence a client’s ultimate decisions.
This means commission-only advisors can sell products that may be best for them, not for you.
Fee-based advisors receive commissions, but they may also be paid a fee by the client for the advice they offer. Typically, such advisors manage investments on a fee-only basis, but they also sell other commissionable products such as life insurance or variable annuities. Additionally, they may receive compensation from third parties for referrals or services related to their advice.
Similar to commission-only advisors, they are not required to disclose the amounts of their commissions to their clients.
At the Orange County Financial Advisors Network, all of our advisors are fee-only. Fee-only advisors are held to a fiduciary standard, which is the highest standard of care. Their responsibility is to serve their clients to the best of their ability. They’re required to put their clients’ interests ahead of their own and to openly disclose any conflicts of interests they may have when providing recommendations or advice to their clients.
A fee-only advisor’s compensation comes directly from the client, not from sales commissions, undisclosed fees, or third party agreements. As a result, you can be confident that the advice you receive is based entirely on your needs and objectives.
Fee-only advisors are the minority within the profession right now. That means that most financial advisors out there aren’t held to the highest standard of care when providing their clients with financial advice. Most advisors are prioritizing their interests above their client’s interests, which is wrong. Are there good commissioned-based advisors out there? I’m sure. Are their bad fee-only advisors out there? Probably. However, if you want objective advice that’s in your best interest then the odds are largely in your favor by choosing a fee-only advisor.
It is difficult to get a man to understand something, when his salary depends upon his not understanding it!
Upton Sinclair
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