“Fee-Only” and “Commission”.
Fee-Only simply means that all of an advisor’s compensation is received from the client, and none from product sales commissions. This is typically achieved through a combination of hourly fees, financial planning fees, and asset management fees.
Commission-based advisors receive commissions from financial companies for selling investment and insurance products to clients. Note: Advisors that are “fee-based” receive both commissions from product sales and fees from clients.
In a word – Objectivity. Commission-based products lead to an inherent conflict of interest between advisor and client. We have all read horror stories about advisors that churn client accounts or sell clients the products that pay the highest commissions, not the products that are best for clients. Because Fee-Only advisors receive no commissions of any kind, we have no incentive to use products that are not in our clients’ best interest, or to recommend a product or service that our clients don’t need.