While planning your investments there are few questions you must answer one of which is whether you must go for a fee-only advisor or a fee-based advisor? However similar these questions may seem, they hold quite a different meaning and value to your financial portfolio.
The key difference between a Fee-only Advisor and Commission-based Advisor
Fee-only financial advisor: A Fee-only planner is one who gets paid directly by the clients only. There is no other mode of payment that they receive for their services. No fund house or other fund provider pays them for their services. Fee-only advisors are fiduciaries i.e. they are bound to put the interests of their clients’ interests before their own or of the fund house.
The fee paid can be a fixed percentage like 1% or 1.25% of the investor’s total portfolio value for a year or a flat fee which may be charged on annually, monthly or hourly basis depending upon the understanding between you and your advisor. The fee-only structure essentially means there is no other mode from which the advisor receives the payment. These are the advisors who give honest and most appropriate advice to the investors as they do not receive any commission from the fund house or any other fund provider and hence it becomes extremely important for them the ensure the success of their client’s portfolio.
A fee-only advisor acts in the best interest of his or her clients as he gets paid only by them and hence the term fiduciary is used in their correspondence. Both certified financial planners and registered investment advisors can be fiduciaries. Before you make all decisions relating to the health of your investment portfolio, you must know your money is in safe hands.
Commission-based financial advisor: A commission-based financial advisor is one who gets paid by clients as well as other institutions. Simply put, commission-based financial advisors receive commissions for the products they sell to the investors and clients. Commission-based financial advisors are also known as fee-based advisors. Most of the dealers and brokers fall under this category as they are trained to make any random product suit the investor and earn a commission for their selling abilities.
When you come across a commission-based advisor, there might develop a conflict of interest as their first interest would be in earning the highest commission for selling the product which they sell. If your broker or dealer is a registered financial representative that means the advisor is working in the interest of the fund house. There are very low legal standards that govern such advisors and hence they are free to sell any type of product that or may not suit the investor. You must look out for agreements which state how these brokers or advisors are compensated from the company’s behalf and work in the best interest of the company and not the investor.
Before you hire a financial advisor, you must conduct a background check which would help you highly in deciding which way to go in regard to your financial advisor. This will help you in deciding which one is best for you.
Fee-only or fee-based advisor, which one to select?
While you are dealing with your finances and investment portfolio, you must understand that hiring a fee-only advisor and fee-based advisor can make a huge difference. A fee-based advisor can steer you towards mutual funds which might not be suitable for you. Hence you need to be 100% sure if the advisor is working in your best interests or of the fund house or fund providing company. We at piggy premier are one of the few companies in the country who has taken the fiduciary responsibility to act in customers’ interest.
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Hence, it is advisable that you go for a fee-only advisor and who works in your favour and for the overall benefit of your investment portfolio so that it grows along with the growth of the advisor due to your portfolio’s success. Also, a fee-only investor would be a fiduciary and follow such standards to earn benefits over the success of your portfolio and not on the sale of a product. You can look out for investors registered with designated bodies.
Of all the available options whichever you choose, make sure your advisor works in the best interest of your portfolio and does not focus on self-interest only.