When hiring a financial planner you are looking for someone who is going to give you sound financial advice. If the advisor is compensated based on the sale of a product, then it becomes difficult to assess the value and objectivity of the advice.
The main advantage of fee-based advice is simple: if your advisor is paid the same fee by you no matter which strategy or investment product that they recommend, then they will put your interest ahead of their own. Clearly a fee-based approach to financial advice better aligns the financial planner’s interest with those of their clients. So our success is tied directly to the success of our clients’, and not to the sale of an opaque commission product.
A recent survey by the Investment Executive found that the overriding reason why financial advisors convert from a commission model to a fee-based model was to eliminate conflicts of interest.
There are other advantages. First, fees are easy to understand. They also offer greater transparency and are reported to you on a regular basis. Fee advisors must deliver advice that you truly value and provide a high degree of service in order to retain you as a long-term client.
In the case of our wealth management service, fee advisors generally have access to a broader selection of products. The fee-based option also eliminates the worry about being locked-in by back-end commissions or deferred sales charges.
Finally, in certain circumstances, fees may be tax deductible against income, which can result in significant savings for higher-income clients.