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Why Fee Only Advisors Could Be Right for Your Investment Accounts

Why Fee Only Advisors Could Be Right for Your Investment Accounts

September 26, 2023

No matter how much money you have in your investment portfolio, growing that figure in the months and years ahead is crucial for living the life and retirement you’ve dreamed about. 

Financial advisors can help you to reach your financial goals, but how they get paid often dictates the type of service that you will receive. For many people, a fee-only investment advisor could be the right fit – especially if they are also a fiduciary. 

Before you hire a financial advisor to join your team, here is what you need to know about their payment and the type of service you can expect to receive. 

What is a Fee-Only Financial Advisor?

A fee-only financial advisor can be a great way to manage your assets, especially if your overall portfolio is rather large. Instead of being paid based on the amount of money you have invested, they are paid solely on an hourly rate or as a flat fee. 

You may pay this one time in order to set up your accounts or regularly as you look to maintain your investment accounts into the future. 

Oftentimes, a fee-only financial advisor is also a fiduciary which means they must act in your best interest. This can sometimes be called into question when a financial advisor is paid commission based on the investments that you purchase. A fiduciary is all about your bottom line and acts solely on what would benefit you most. 

It only makes sense to look for a financial advisor who also holds the title of being a fiduciary for your investments. 

Of course, a fee-only financial advisor is not the only option out there. Here is a quick look at other ways that you may pay an investment advisor:

  • Assets under management (AUM): Some advisors will be paid based on a percentage of the assets under their management. You may pay extra for ongoing planning and financial advice.
  • Fee-based: Financial advisors who are fee-based are often paid by a mix of flat fees, commissions, and assets under management in varying degrees. 
  • Commission-based: Your financial advisor may be paid based on selling certain products or when a certain type of financial transaction takes place (such as the sale or purchase of a stock). They may include financial planning in their fees. 

Pros of a Fee-Only Financial Advisor

If you are concerned about the long-term performance of your investments, you may want to hire a fee-only financial advisor. A fee-based advisor that does not have any commission-based compensation is a good option, too.

As you can see from the other types of payment structures, there are times when a financial advisor may not have your best interests at heart. For example, they may be paid a commission for selling certain products even if those products do not align with your overarching goals. 

Fee-only models allow a financial advisor to look at your overall portfolio and act on what is in your financial best interests. They trust that by offering solid advice to you for the future of your portfolio, you will keep seeing them and maybe even recommend them to friends and family. 

In other words, their livelihood depends on your happiness with their services instead of posing an inherent conflict of interest due to commission-based payments. 

From time to time, you may want to have your investment portfolio reviewed by a second party to make sure that you are making the most of potential investments. Finding a fee-only financial advisor gives you the opportunity to do just that. They will not be the ones managing your funds (yet), but they can still review your investments for a flat or hourly fee. 

Cons of a Fee-Only Financial Advisor

Maintaining your investment portfolio is important work, and a fee-only financial advisor may sound like the best way for you to go. However, there are some times when fee-only services might not be the best fit for your portfolio, especially when you need ongoing active management or tax sensitive investing.

A fee-only type of service is sometimes more expensive than assets under management or fee-based offerings. If you have a relatively small portfolio, you may be better off paying based on the overall value of the assets that will be managed because the fee will be smaller. On the other hand, if you have a large investment portfolio with static positions, this fee-only model may be the best fit for you. 

Make sure that you find a financial advisor who is willing to work with you and is designated as a fiduciary. Without this title, you may find that they are less motivated to help with your wealth. They get paid the same amount regardless of how successful your portfolio is, and this can sometimes lead to apathy for the field. 

Keep in mind that fee-only investment advisors will only get paid if they have clients coming through the door though. If they do not yield results for their clients, their career may be short-lived. This motivates many of them to try as hard as possible to achieve results while managing your portfolio.

Lean On Experts to Manage Your Investments 

Magellan Planning Group specializes in helping you define your goals and tracking your performance toward them on a daily basis. We can help you to reach your goals after determining your personal tolerance for risk, the time horizon when you want to see funds return to you, and the amount of income you require. 

If you have a sizable portfolio and want quality care for your investments, Magellan is here to help you with our Super-Cycle strategy. Learn how we can help you make the most of your finances by reaching out to us today