Fee-only advisor

What It Means

A fee-only advisor is a financial advisorFinancial advisorA general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you. See more whose pay comes only from the client. NAPFA, the professional association for fee-only advisors, says neither the advisor nor anyone related to them may receive pay that depends on a client buying or selling a financial product, so there are no commissions, rebatesRebateMoney paid back to you after you've paid full price, such as a mail-in rebate from a store or manufacturer; a return of part of a payment. See more or finder's fees. The fee itself can be hourly, a flat amount, a retainer or a percentage of the money they manage.

How People Say It

• "She's fee-only, so I pay her and nobody else does."
• "He charges one percent of what he manages."
• "I just paid for a one-time plan by the hour."

The Breakdown

Formula

Percentage fee in dollars = money managed × yearly fee ÷ 100. Hourly cost = rate × hours. A flat fee is the number you're quoted.

Worked example. The Ortizes have $250,000 to invest and get three fee-only quotes. These rates are examples for the math, not typical prices.

What the result means. At $250,000, the hourly plan costs least, but it's a one-time plan, and the Ortizes would carry it out themselves. The percentage fee is $2,500 now and would be $5,000 if the account doubled to $500,000, with no change in the work. With the flat fee, the cost stays at $3,000 either way. None of them earns a commission, which is what makes all three fee-only.

What moves the number. The size of your account matters most for a percentage fee. For hourly and flat fees, the scope of the work (a single plan, ongoing management, taxes, estate questions) sets the price.

Good to Know

Fee-only and fee-based sound alike and mean different things. The CFP Board says "fee-based" is equivalent to fees and commissions, and a CFP professional who uses it must not suggest they're fee-only. Under the CFP Board's standards, a CFP professional may call their pay fee-only only when they, their firm and related parties receive no sales-related compensation. NAPFA members must work only within the fee-only structure. Ask for the fee schedule in writing, and keep in mind that the funds you're placed in charge their own expense ratiosExpense ratioThe yearly share of a fund's assets used to pay its running costs, so a 0.40% expense ratio costs $40 a year for every $10,000 invested. See more on top of the advisor's fee.

Related Terms and Categories

• Fiduciary

  A person or firm with a legal duty to act in someone else's best interest; investment advisers owe this duty to the clients they advise.

• Financial advisor

  A general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you.

• Robo-advisor

  An online investment adviser that uses computer algorithms to build and manage a portfolio for you from your answers to a questionnaire.

• Expense ratio

  The yearly share of a fund's assets used to pay its running costs, so a 0.40% expense ratio costs $40 a year for every $10,000 invested.

• Financial goals

  Specific targets for your money, such as an emergency fund, paying off a card or a down payment, each with an amount and a date.

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