Many advisors are “fee-based” (not fee-only) which means that they accept both fees and commissions. It also means that they could have the same conflicts of interest as a commissions-only advisor. But that doesn't stop some fee-based advisors from criticizing commissions-only advisors. It's a little sad that any advisor feels the need to promote his or her own credibility by criticizing other honest advisors who may be providing the same products and services at a lower cost to the consumer.
Some fee-only advisors like to talk about all the extra services that clients get when they pay a fee. And that might be a good deal for clients who need and use those extra services. But it is important to understand that many advisors who earn commissions can and do provide all the financial planning services that the average consumer needs. Consumers may need a retirement income plan, an insurance and risk management plan, a basic estate plan (a job for an attorney), and possibly a plan to reduce or control their taxes. And some may need help planning for education expenses. All those basic services can be provided by fee-only advisors, fee-based advisors who earn both fees and commissions, and by advisors who are paid entirely by commissions.
We can’t eliminate conflicts of interest, but we can and should disclose them. If we disclose all conflicts of interest, and the consumer understands them, the key question regarding adviser compensation should be which method is most cost-efficient for the client.
About the Author: C. Thomas (Tom) Thames is a Certified Financial Planner™ professional with offices in Elk Grove and Folsom, California. Tom holds an MBA degree from Santa Clara University and has over 45 years of experience in the financial services industry.