What Does Fee-Only Mean?
Paul Barringer founded HSC Wealth Advisors in 1983 because he believed that Lynchburg, Virginia was in need for a company that would treat clients the way he himself would want to be treated. We’ve kept that goal alive: treating our clients how we would treat ourselves and more importantly, our own families.
We establish a fiduciary relationship with you, a special relationship of trust, confidence, and/or legal responsibility when providing advice or managing your assets—as outlined by the Center for Fiduciary Studies in their Prudent Practices for Investment Advisors.
As an independent, fee-only, registered investment adviser (RIA), HSC Wealth Advisors only require clients to pay us our fee, no matter how we work together. Fee-only advisors, like HSC, have fewer conflicts of interest and we generally provide more comprehensive advice on various financial services. Another advantage of a fee-only advisor is that there are no financial hooks, surrender charges or lockup periods. Clients are free to leave at any time if they are disappointed.
The Difference Between “Fee-Only” and “Fee-Based”
A “fee-based” financial advisor on the other hand is not governed by the same principles as a “fee-only” financial advisor. The two terms sound remarkably similar; however, they are light years apart in meaning and it’s the “fee only” most of us will want to hire.
“Fee-based” advisors start with their fees — and are then permitted to add commission on top of it, for selling products such as mutual funds or insurance. Most likely, if you’re working with a fee-based advisor, they don’t just charge you a fee for the assets they manage for you. Depending on the products that they promoted you into obtaining, they may receive commissions, soft dollars and referral fees from the brokerage firm, mutual fund company or insurance company for whom they work.
The potential conflict of interest is obvious: When an advisor is compensated by what they sell you, they may be more likely to try and make that sale. Since they aren’t bound by fiduciary duty, they aren’t obligated to tell you if that sale is in your best interest. In fact, “fee-based” advisors will get paid differently on some products versus others and will sometimes push a product that you don’t need— nor will that product help you towards a secure financial future.
What Should You Ask Your Potential Financial Advisor?
Consumers need to look closely at the compensation structure to determine if the advisor is truly “fee only”. Before hiring an expert, you can always ask. In fact, we’ll provide you with a commonly recommended question to ask a potential advisor and a straightforward way to distinguish between the two types of fee structures is simply: “How do you make your money?”
Here’s how we answer: Our clients pay us only our fee, no matter what. You don’t pay sales commissions, contingent deferred sales charges, high expense ratios, referral fees, soft dollars or any other ambiguous fees that are, confusing at best and, at worst, harmful to your investment return. We primarily charge a percentage of assets under management because of our emphasis on offering comprehensive wealth management. But fee-only financial planning includes other methods of charging clients such as a flat retainer, an hourly rate or a charge specific to the task at hand.
As an “independent, fee-only RIA”, we are quite unique among financial advisors in our area. The bottom line is we serve our clients and only our clients; doing all we can to see that you reach the goals and objectives that you have set for yourself both financially and in life—it’s as simple as that with HSC.
I encourage you to find out if and why we are some of the best in the industry. So get in touch with us and let HSC help you secure a financial future.
To find out more about fiduciaries, visit www.focusonfiduciary.org or go to the National Association of Personal Financial Advisors www.napfa.org for more information. Or call NAPFA at 1-800-366-2732.