Difference between Fee-Only and Commission-Based Certified Financial Planner
Basis |
Fee-Only Certified Financial Planner |
Commission-Based Certified Financial Planner |
---|---|---|
Compensation Structure |
Compensation is received solely through fees |
Planner earns commission on selling or recommending financial products |
Compensation Calculation |
Fees are charged either at the flat rate, hourly or monthly basis, or as a percentage of assets under management |
Commission depends on the nature and type of financial products considered |
Transparency |
There is transparency in the compensation structure as fees are disclosed to the client |
Commission offered are generally not disclosed clearly, and there might be hidden income as well |
Focus |
Focus on providing optimum financial services to the clients to serve their interests best |
The focus is on earning a better commission. Planners may recommend products that might yield higher commissions, ignoring the interest of the client |
Conflict of Interest |
Reduce conflicts of interest due to a transparent structure |
Potential conflicts of interest due to commission and hidden income |
Fiduciary Standards |
Always act as per fiduciary standards |
May prioritize suitable standards instead of fiduciary standard |
Client Suitability |
Suitable for clients seeking holistic and unbiased financial planning |
Suitable for clients seeking product-based advice |
Fee-Only Certified Financial Planner (CFP): Complete Guide 2024
A Fee-Only Certified Financial Planner is a financial professional who charges fees solely for offering financial services and bits of advice regarding fund management, retirement planning, debt paydown, setting financial goals, etc. This means these professionals do not receive any commission or hidden earnings for advising any particular financial product or investment tools. Fee-Only Certified Financial Planners are often preferred in the financial world because of the transparent compensation structure and reduced potential conflicts of interest. These financial planners charge fees in a few different ways including, flat fees, fees on an hourly or monthly basis, or as a percentage of the client’s assets under management (AUM). These advisors are often registered with either the U.S. Securities and Exchange Commission (SEC) or a state-level institution.
Key Takeaways
- Fee-Only Certified Financial Planners receive compensation for their services solely through fees paid by their clients. No commission is paid for recommending a particular financial product.
- The most common method of fee computation in this field is based on the value of assets under management (AUM). This means planners charge a certain percentage of the assets they are responsible for handling as their fees.
- Fee-Only Certified Financial Planners have gained popularity in recent times because of their transparent and straightforward compensation structure.
- Fee-Only Certified Financial Planners are preferred by clients because it is free from conflicts of interest.
Table of Content
- How to Find a Fee-Only Advisor?
- How to Find a Qualified Fee-Only CFP?
- How much would a Fee-Only Financial Advisor cost?
- Advantages of Fee-Only Certified Financial Planner
- Disadvantages of Fee-Only Certified Financial Planner
- Difference between Fee-Only and Commission-Based Certified Financial Planner
- Conclusion
- Fee-Only Certified Financial Planner – FAQs