Portfolio goes up, so does fee. Portfolio goes down, so does fee. Incentive is to service existing clients rather than acquire new ones to maximize compensation.
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| FEE ONLY | COMMISSION BASED | |
| Payment methodology | Flat annual, hourly and/or a percentage of assets under management. Tailored to your situation. Simple. | May include a fee and/or a commission. Not always transparent or simple. |
| Transparency | Easy to see. | Not always visible. |
| Aligned incentives | Portfolio goes up, so does fee. Portfolio goes down, so does fee. Incentive is to service existing clients rather than acquire new ones to maximize compensation. |
Commission paid “up front” and paid before the portfolio performs. Incentive is to acquire more clients to maximize compensation. |
| If you need or want to get out of the market | Fee paid quarterly, so you only pay for service provided. | Commission paid up front; No refund if you leave market after it is paid. |
| Choice of funds | Free to choose the best funds from any fund family because the fee is the same, regardless of funds chosen. | Discounts (break points) provided for selecting funds in one fund family. So the trade-off is reduced cost, but it limits your choices. |
| Level of care | Fiduciary – make the best recommendation for the client. | Suitability – advisor is contractually obligated to primarily represent their employer. You are a client of the company, not the advisor. |
| Independence | "I only work for you. Fee-only. Fiduciary. I am my company." | Works for their employer or the company that owns the franchise. Obligation to employer precedes obligation to client. |
| Custodian (Firm where your brokerage account is held.) | "I go where you are. I can work with whatever brokerage firm you choose because my compensation is not tied to the firm. However, I am able to trade on your behalf, at your direction, at certain custodians." | You follow your advisor as they move to different broker/dealer firms, because their compensation is tied to that firm. |