investing

Fee-based or fee-only financial advisers?

Fee-only guarantee
Fee-only guarantee © sergign/Shutterstock.com

If you want a fee-only adviser, there are a few things you should do, Scott says.

Many financial firms disclose any broker-dealer relationships on their website, says Scott. To avoid fee-based operations, look for language indicating that securities are offered through a "broker-dealer."

You can also visit the website of the Securities and Exchange Commission and access a company's Form ADV. This will reveal the firm's compensation structure.

An easier way to ensure you are getting a fee-only -- as opposed to fee-based -- adviser is to visit the website of the National Association of Personal Financial Advisors, or NAPFA. All firms that are members of NAPFA meet strict fee-only criteria.

If you want extra protection, Scott suggests asking your adviser to sign a fiduciary oath stating that the adviser pledges to do the following:

  • Act as a fiduciary 100 percent of the time. This means the adviser will put the client's interest first, ahead of the interests of the adviser or the adviser's firm.
  • Disclose all conflicts of interest.
  • Accept payment only from the client for services rendered.
  • Refuse to accept referral fees or commissions that are contingent upon the purchase or sale of a financial product.

"If a financial professional won't sign a fiduciary oath, (then) they do not act as a fee-only registered investment adviser at all times," Scott says.

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