Global View Investment Advisors is a fee-ONLY firm. We are paid by our clients and ONLY by our clients. While we may pay others for referrals, we will not accept payment for giving them. There is a huge difference between fee-based and fee-only financial advisors.
“Financial Advising is a prescriptive activity whose main objective should be to guide investors to make decisions that serve their best interests.”
-Daniel Kahneman, 2002 Nobel Prize winner in Economics and 2013 author of Thinking Fast and Slow.
The way advisors and the firms they work for are paid can determine the type of advice they give. Brokers and Fee-based advisors, or the firms they work for, may receive incentives to use certain investment products or commissions to sell insurance.
All other things equal, investors should seek advice from a fee-ONLY advisor whose financial incentive is to work in their best interest. Most investors do not understand the different obligations of an investment advisor.
- Fee-ONLY advisors do not face a conflict of interest which might incentivize them to advise clients in a manner not consistent with the client’s best interests.
- 79% of investors would rather work with a fee-ONLY investment advisor vs. a stockbroker or fee-based advisor who may work for a firm receiving commissions.
- If an advisor, or the firm he works for “offers securities” then the advisor is NOT fee-ONLY but is instead fee-based. This is easily determined by looking for the words “securities offered” on brokerage statements and the firm’s website. Fee-ONLY advisors do not offer securities.
- Advisors who receive insurance commissions may be fee-ONLY from a legal “investment advice” perspective. However, they will NOT be fee-ONLY from the investor’s perspective because they can sell insurance which can be commission based and have no on-going advisory role.
- Designations such as Certified Financial Planner™ are no guarantee of fee-ONLY advice. Thousands of Certified Financial Planner™ professionals offer fee-based advice and receive insurance commissions.
What are the Options?
Advisors can be categorized into three different groups; brokers, registered investment advisors, and those who are a combination of the two. Brokers are commission-based advisors who make money offering and selling products. Registered Investment Advisors are fee-ONLY advisors who make money by charging a fee for their advice and management. Most advisers are some combination of the two. These are known as fee-based advisors, making money by charging a fee for advice but also selling products.
Why use a Registered Investment Adviser over a Broker?
Registered Investment Advisors operate as fiduciaries to their clients in the same way that Certified Public Accountants or lawyers are fiduciaries to their clients. This means that, beyond even moral requirements, fee-ONLY advisors are legally required to work in the best interests of their clients. T.D. Ameritrade conducted an Investor Perception Study which found that 74% of investors did not understand the different obligations of different advisors, and therefore did not realize that registered investment advisers are the only advisers who are legally required to act in the best interests of their clients. 79% of investors said they would rather work with an investment advisor versus a stockbroker. Over the last several years, the number of advisers who can work as both investment advisors and stockbrokers has significantly increased. Because no one advertises that they are a “stockbroker,” we feel it is important to make the distinction between fee-ONLY advisors (who work as registered investment representatives only) and fee-based advisors (who may receive investment commissions or other compensation).
Why are Fee-based relationships not the same as Fee-Only?
The reason a fee-ONLY relationship is preferable to a fee-based one is simple. When an advisor operates on a fee-ONLY basis he works solely as a registered investor advisor. This affords the client the comfort of knowing that there are no outside monetary incentives present which might influence the advice provided. Fee-based relationships are offered by advisors whose firms may receive a combination of fees and commissions. Fee-based advisors may charge a client a fee for advice but they may also receive payments for products they sell or recommend. The problem with this compensation model is that it lessens the advisor’s ability to keep the client’s best interests foremost when there may be a monetary incentive to do otherwise.
This often occurs when the advisor works for a firm that may receive commissions or the advisor may have other licenses, such as an insurance license, that allow them to receive commissions. Brokerage firms receive commissions even when the advisor may not be paid on them. Revenue sharing agreements with investment providers and insurance or annuity companies as well as revenue from other activities such as lending deposits may have a major impact on the advice given in a fee-based relationship. These revenue streams create a potential conflict of interest where the advisor’s firm may create incentives in the firm’s interest rather than the clients’ interest.
How can I determine if I have a Fee-Only or Fee-Based relationship?
If you are in a fee-ONLY relationship, your advisor will most likely tell you that you are in a fee-ONLY relationship instead of a fee-based relationship. Your advisor should tell you that he works for a registered investment advisor representative and (the and is important because many fee-based advisors work as both investment advisor representatives of a Registered Investment Advisor AND financial representatives of a brokerage firm which may receive commissions):
- Neither he, nor the firm he works for, receives investment commissions
- Neither he, nor the firm he works for, receives insurance or annuity commissions or referral fees from insurance companies
- Neither he, nor the firm he works for, receives compensation from investment providers. More specifically neither he nor the firm he works for shares revenue in any way with investment providers
You can also check your account statements and the website of your investment advisor. Brokerage firms, which may offer either commission based or fee-based (as opposed to fee-ONLY) accounts, are required to disclose the conflict of interest that exists between themselves and their clients regarding investment commissions. You can look at brokerage statements and the investment advisor’s website to find any disclosures of securities offered. Fee-ONLY investment advisors are not affiliated with firms that offer securities. This is a red flag that the firm your advisor works for may receive commissions or revenue share. If you are working with a fee-ONLY advisor then you will NOT see any of the following on the advisor’s website:
- “Securities offered through” (this means their firm may receive commissions for offering securities; a fee-ONLY advisor does not OFFER securities)
- Advisors hold insurance licenses or designations such as Chartered Life Underwriter (used for life insurance) or offer or sell insurance and annuity products
It is also important to note that, while Certified Financial Planner™ is an excellent designation illustrating an advisor’s command of financial planning, a CFP® may operate either fee-based or fee-ONLY. Moreover, there are many other ways advisors can potentially be paid. An examination of a mutual funds statement of additional information in as well as its prospectus can reveal much light on something called revenue sharing. Similarly a close inspection of insurance contracts details commissions paid as well as other fees that investors might find shocking if they were more prominently disclosed.
Global View Investment Advisors is a fee-ONLY firm. We are paid by our clients and ONLY by our clients. While we may pay others for referrals, we will not accept payment for giving them.