The Fee-Only & Fiduciary Difference
Financial advisors typically fall into one of two categories: fee-based and fee-only. While their names are similar, their business models have two important differences that can affect your financial future.
A fee-based advisor typically charges a percentage fee on the assets they manage for you, plus they can earn commissions on products they sell to you. Fee-based advisors also can earn compensation for mortgage lending and other cross-selling opportunities. The vast majority of financial advisors in the U.S. are fee-based. A fee-only advisor, on the other hand, does not earn commissions or sell products. Their sole compensation comes from a simple and transparent management fee paid to them by their clients. As a fee-only advisor, Pittenger & Anderson has an incentive to keep your investment expenses low.
2) Standard of care
The other key difference between fee-based and fee-only advisors is the standard of care required of each. The fiduciary standard requires an advisor to put your interests first, while the suitability standard merely mandates an investment must be “suitable” for you. (Would you rather marry the right person or settle for a “suitable” spouse?)
Fee-based advisors are held to a fiduciary duty when offering advice and the suitability standard when implementing this advice (recommending products). Their ability to switch hats mid-stream like this can be confusing for a client (In what capacity is my advisor acting in now?). Not all fiduciaries are the same. Fee-only advisors must act as a fiduciary at all times, not just when offering advice. Pittenger & Anderson is a full-time fiduciary financial advisor.
So how can you tell whether an advisor is fee-only or fee-based?
Visit an advisor’s website and scroll down to the bottom of their homepage. If you see language like “Securities offered through…” or “Member SIPC, FINRA,” the advisor in question is fee-based and compensated by selling you products. Or look in the firm’s Form ADV, which is the uniform disclosure document for Registered Investment Advisors. You can find a firm’s Form ADV on the Investment Adviser Public Disclosure website. If the “commissions” box is checked under Item 5 – Compensation, you know you are dealing with a fee-based advisor. Fee-only advisors go out of their way to tell you they’re fee-only.
If you would like to learn more about the fee-only and fiduciary difference, please connect with us below.
Pittenger & Anderson, Inc. is a fee-only Registered Investment Advisor based in Lincoln, Nebraska, providing investment management and financial planning services. As of June 2019, we manage over $1.6 billion in assets for 600+ clients in 29 U.S. states.
5533 South 27th Street, Suite 201, Lincoln, NE 68512
402.328.8800 or 1.800.897.1588 or firstname.lastname@example.org