Across the United States, hundreds of thousands of financial advisors offer everything from investment management and tax planning to investment products that provide a set monthly payment for life. But no two advisors are quite alike — compensation structures, investment philosophies, and approaches to client care can vary widely from one practice to the next. With so many options to choose from, finding the right fit can be overwhelming.

When evaluating different financial advisors, one of the most revealing questions you can ask is “How are they compensated?”

Understanding how your advisor gets paid can help you identify potential conflicts of interest and find someone who objectively puts your interests first. In this article, we’ll take a closer look at fee-only financial advisors, define the differences between fee-based, commission-based, and fee-only compensation models, and explain how both an advisor’s payment structure and practice standards can influence their recommendations significantly.

What Is a Fiduciary, and Why Does It Matter?

An advisor’s compensation structure can directly influence the advice they provide, but the underlying practice standards the advisor is held to when making recommendations can help a client determine whether the advice is truly in their best interest or simply just suitable for their situation.

A fiduciary is a person or an organization that is legally obligated to act in the best interest of another. They must put their clients’ needs above their own, making each recommendation with good faith and full transparency. Here at Milestone Financial Planning, LLC, we operate under the fiduciary standard. As a registered investment advisor and firm with multiple Certified Financial Planner® professionals, we are legally obligated to act as a fiduciary on behalf of all our clients. However, it is very important to note that not all advisors are held to this standard.

Fiduciary Standard vs. Suitability Standard: What’s the Difference?

What many clients fail to realize is that the financial services industry does not hold all advisors to the same legal standard when it comes to acting in a client’s best interest. This may seem surprising, but the reason lies in the difference between two practice standards: the suitability standard used by broker-dealers and the fiduciary standard followed by registered investment advisors. Under the suitability standard, advisors affiliated with broker-dealers are permitted to recommend commission-based products as long as they are deemed “suitable” for the client’s situation — even if better products exist. This creates a gray area and generally more leniency on the advisor’s behalf, as what’s “suitable” doesn’t always align with what’s truly in the client’s best interest. Advisors held to the suitability standard may be motivated by higher commissions, which is why they might recommend a suitable, yet suboptimal, investment. As a fiduciary, recommending a product for an advisor’s own personal gain knowing that the client would benefit from a better product would breach the fiduciary duty of loyalty to the client.

Fee-only vs. Commission vs. Fee-based: Understanding the Differences

Fee-Only

These advisors are typically fiduciaries, and the only compensation they receive is for the advice they provide. Fees may be structured as a percentage of managed assets (known as AUM or Assets Under Management), an hourly rate, or a flat fee. Fee-only advisors do not receive commissions for recommending financial products or investments, which closely aligns with the fiduciary standard.

Commission

These advisors are paid a commission from selling products, either mutual funds, preferred stock, annuities, or other financial products. The amount they earn is typically tied to the products they recommend and sell, which can create potential conflicts of interest. Because they are paid based on sales metrics, the advisor’s incentives may not always align with the client’s best interest, as the focus can shift toward selling products that generate the highest earning potential rather than the optimal option for the client’s financial goals.

Fee-Based

Some advisors operate under a hybrid model, earning both fees and commissions depending on what service they are providing. This is often referred to as fee-based (not to be confused with fee-only!). This compensation arrangement can be difficult for clients to understand, especially when they are trying to discern if a recommended product is in their best interest or tied to the advisor’s compensation package. While the advisors may still act as fiduciaries, the dual compensation structure can create potential conflicts of interest that clients should be aware of.

What Does “Fee-Only” Mean?

Fee-only, as defined in #1 above, means the only fee the advisor receives is for their advice. Milestone Financial Planning is fee-only and does not sell any products or receive commissions of any kind. The term fee-only means that our fees are transparent and established in advance, creating a clear and straightforward compensation structure understood by both parties before engaging in the financial planning process. This type of arrangement reduces conflicts of interest because advice is not driven by commission potential and closely aligns the interests of both the advisor and the client. All our advisors are members of the leading fee-only professional association, the National Association of Personal Financial Advisors (NAPFA), and adhere to NAPFA’s very strong code of ethics.

What Is a CFP®?

All advisors at Milestone Financial Planning are Certified Financial Planner® professionals, the premier certification in the financial services industry. Earning the CFP® certification requires rigorous preparation, proof of financial education and experience, and adherence to strict ongoing ethical and continuing education requirements. Our advisors are further bound by the CFP® Board’s Code of Ethics and Standards of Conduct to ensure all clients’ best interests are at the forefront of the planning process.

It is important to note that not all CFP® practitioners are fee-only advisors, and not all fee-only advisors are CFP® practitioners. To find an advisor who is both fee-only and a CFP® practitioner, you can visit NAPFA’s website and use the “Find an Advisor” tool.

Beyond connecting with a financial advisor who holds the CFP® certification, you may want to find an advisor with personal income tax expertise to develop a comprehensive plan and integrate all areas of your financial life. This is what sets Milestone Financial Planning apart from many advisory firms in the industry — all our advisors and planning associates are trained by a CPA in tax planning, and many are also trained in tax preparation.

Looking for a fee-only advisor with a CFP® certification and personal income tax experience? Milestone has you covered. Reach out to one of our advisors today to learn how working with us can strengthen your financial future.