Fee-based or fee-only financial advisers?

Is changing the terms the solution?
Is changing the terms the solution? © Syda Productions/

Anything that confuses investors about how an adviser is compensated is counterproductive to good financial planning, Lemoine says.

"Transparency builds trust -- not only between a client and financial service professional, but also between consumers and the industry as a whole," he says.

He says the term fee-based can be misleading, and believes more precise terminology that clearly identifies how an adviser is compensated can help "demystify the planning process."

Scott would like to see labels changed to something more transparent. He says advisers should be characterized as being compensated by "commission," "commission" and fees" or "fee-only."

Unless and until such changes become widespread in the industry, advisers have the burden of helping investors understand the terminology, Scott says.

"It's an uphill battle," he says.


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