By Daniel Korleski, MBA
Are you hoping to partner with a financial advisor to guide you on your financial journey? This is an important step to reach your financial goals. In your research for the right advisor, you may have come across the term “fee-only.” This term is usually used to describe registered investment advisors (RIAs) who provide services and planning that, by law, can only be in your best interest.
But what does this term mean, and why is it important?
Today I’ll discuss what “fee-only” means, outline other types of fee structures some financial advisors use, and explain the benefits of using a fee-only financial advisor.
How Advisors Get Paid
To truly understand the value of a fee-only advisor, it’s first important to understand the different ways advisors can get paid. The three most common methods include:
- Commission-based
- Fee-based
- Fee-only
Commission-based advisors don’t charge fees to their clients. On the surface, this model sounds great. But these advisors have to get paid somehow, so instead they earn commissions from financial and insurance products they sell to their customers. Even if they mean well, commission-based advisors may be more motivated to sell products that will earn them the most money, rather than providing advice that is in the best interest of the client.
Fee-based advisors may sound like they’re fee-only, but they also make commissions from financial products and transactions. In addition to charging their clients fees, they earn a percentage of their revenue from selling products on behalf of brokerage firms, mutual fund companies, or insurance companies, thus placing them at the same risk for conflicts of interest as commission-based advisors.
Fee-only financial advisors are paid directly by their clients—and only by their clients. They don’t receive any type of kickbacks or commissions for recommending certain securities or investments. Their fees are typically structured as a small percentage of the assets they manage, known as assets under management (AUM) fees. Because fee-only advisors only get paid by their clients, their incentives are usually better aligned with the clients they work for than commission-based or fee-based advisors.
The Benefits of Working With a Fee-Only Financial Advisor
The National Association of Personal Financial Advisors (NAPFA) believes fee-only advisors are the most transparent and unbiased advisors you can come by. They typically have one of two designations: either registered investment advisor or CERTIFIED FINANCIAL PLANNER™. If you’re in the market for a financial advisor, here are three reasons why you should choose a fee-only advisor:
1. Reduced Conflicts of Interest
No matter how pure an advisor’s intentions are, it can be difficult to provide unbiased recommendations when they know they’ll get a kickback or commission. But this isn’t the case for fee-only advisors. They have no incentive to push certain products because they don’t sell any products at all. They’re solely compensated by you.
2. Fiduciary Commitment
Fee-only advisors are fiduciaries, which means they are legally and ethically obligated to act in your best interest at all times and to disclose any potential conflicts of interest. They are loyal to you and provide objective financial advice based on your unique situation and goals.
3. Objective Advice
It’s easy to act on emotion when you’re dealing with your own money. There’s talk of a stock market crash, so you want to change your investing strategy. A family member needs to borrow money, even though you know giving it to them would jeopardize your financial security. You want to live a comfortable life in retirement, but you’re not sure if you’re on track. In situations like these, it’s nice to have someone you can go to for objective advice.
Why Cobalt Private Wealth Is Fee-Only
At Cobalt Private Wealth, we have our clients—and our clients only—in mind. We pride ourselves on transparency and unbiasedness. We endeavor to give our clients our undivided loyalty and are dedicated to helping them reach their financial objectives.
Whether you have a specific financial concern or need help developing a solid financial plan, we’re here to guide you every step of the way. To see if our services are the right fit for you, reach out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule a meeting.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and has served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, the Board of Directors of Catholic Charities of Central Colorado, President of the Broadmoor Rotary Club and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. When he’s not working, you can find him traveling around the world with his wife of 23 years, Montse, fly fishing, golfing, and hiking with his golden retriever, Curro. To learn more about Dan, connect with him on LinkedIn.
