What Is a Fee-Only Financial Advisor? (And Why It Matters for You)

My First Year in the Industry

When my wife and I got married, we had little money and a lot of pressure. I was studying for licensing exams, she was working as a barista, and our expenses were higher than our income. To add pressure, there were sales incentives tied to hitting specific metrics, a common practice in the industry.

As a 22-year-old with no wealthy contacts, the most realistic way for me to hit metrics was by selling insurance. So I did — mostly whole life policies, with some term and disability insurance. My early training emphasized sales skills, such as overcoming objections and closing. With the knowledge and perspective I have now, I would have approached those recommendations differently. At the time, though, the incentives in front of me shaped my behavior more than objectivity.

This was my personal experience and reflects common industry practices at the time, not necessarily every firm.

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Incentives Drive Behavior

This experience isn’t unique to me. Many firms hire young advisors, help them get licensed, and train them primarily to sell life insurance. Managing investments or providing holistic advice takes longer to generate income.

When compensation depends on products, conflicts of interest are unavoidable. Advisors may genuinely believe in the products they sell, but the structure of incentives heavily influences their recommendations.

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What the Research Shows

A 2021 Journal of Finance paper “The Misguided Beliefs of Financial Advisors”, authors Juhani T. Linnainmaa, Brian T. Melzer, and Alessandro Previtero studied Canadian advisors and found they invested their own money in the same high-fee, under-diversified funds they recommended to clients. Both they and their clients underperformed benchmarks.  In addition, those advisors typically continued to use those same investments personally after leaving the industry.

The conclusion: many advisors weren’t intentionally steering clients wrong — they simply lacked education and were influenced by the industry’s incentives. I know because I was once in that position myself.

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So What’s the Alternative?

The clearest way to reduce these conflicts is through fee-only financial advice.

• Fee-only advisors are paid only by their clients. No commissions. No referral fees.

• Fee-based advisors may charge fees AND earn commissions from products.

• Commission-based advisors are paid solely by product sales.

Fee-only advisors may bill hourly, by flat fee, or as a percentage of assets under management. Each has pros and cons, but the key is that the client — not an investment or insurance company — is the one paying the advisor.

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Why It Matters for You

It’s common to hear from people that they feel sold to by their financial advisor. That’s often the reality when an advisor’s income depends on pushing certain products.

With fee-only advice, you and your advisor are on the same side of the table. You’re paying for guidance, not products. That creates space for collaboration, transparency, and more balanced recommendations.

Can other types of compensation arrangements yield good advice?  Absolutely.  But there is certainly a steeper hill to climb to mitigate conflicts of interest that can influence that advice.

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Transparency Is Still Rare

Despite its advantages, fee-only advice is still the minority model. Out of roughly 321,000 personal financial advisors in the U.S. (Bureau of Labor Statistics, 2023), only about 4,600 are members of NAPFA — the largest fee-only professional organization. That’s about 1–2%.

Most consumers still face a confusing mix of compensation models. Many don’t know how their advisor is paid, or they underestimate the true cost. Complex fee structures and commissions can make it difficult for consumers to compare advisors fairly.

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Finding a Fee-Only Advisor

If you want to work with a fee-only financial advisor, here are a few helpful places to start:

• NAPFA

• XY Planning Network

• Fee-Only Network

• Garrett Planning Network (primarily hourly planners)

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The Takeaway

I began my career mostly on the commission side. Now, as a fee-only advisor, I’ve seen firsthand how this model benefits both clients and advisors. It reduces pressure, mitigates many conflicts of interest, and leads to more thoughtful, unbiased recommendations.

If you’re not sure how your advisor is paid, ask them. And if their paycheck depends on selling you a product, consider what that means for the advice you’re receiving.