THEIR RESPONSIBILITY TO YOU AND THEIR COMPENSATION  

Many advisors are compensated by commissions for selling their products to you. Some people may think that they pay little or nothing for this type of financial service, because the charges are almost invisible, embedded in mutual fund or insurance prices and fees. The aware client understands this industry practice and consciously evaluates their true cost, and whether or not they are receiving worthwhile ongoing advice for the money they are paying. 

They recognize that they have another alternative. They can minimize these sales costs using no-load and Exchange Traded Funds (ETFs), as well as a discount broker, and then engage an independent, unrelated, fee-only financial advisor to provide unbiased advice.    

FEE-ONLY

“Fee-only” financial advisors, like LFM&P, are compensated directly by, and only by, their clients. They sell no products and receive no product sales fees, rebates or distribution fees from mutual fund companies. This business model is adopted so that the fee-only advisor can avoid the otherwise inescapable influence of monetary incentives when recommending financial solutions to you. Fee-only advisors may provide comprehensive financial planning services. Clients who work with fee-only advisors may still pay commissions to their broker, but can effectively select low-cost no-load  or exchange-traded funds and use discount brokers. While fee-only compensation might appear more expensive at first glance, because the charge is direct and visible, it may actually result in lower overall costs than are paid to brokers through camouflaged mutual fund loads and distribution fees.  

Fee-only advisors are typically registered investment advisors and are regulated by Securities and Exchange Commission or a state Securities Division. Registered investment advisors have a fiduciary responsibility to act in the best interests of their clients, as directed by the Investment Advisers Act of 1940.

COMMISSION

Commission compensated advisors, also known as "registered representatives" (of stock brokers) or "agents" (of insurance companies) receive payments for selling you stocks, bonds, mutual funds, insurance policies and annuities. These commissions are included in the price or premium that you pay.  Some mutual funds also collect ongoing fees from the fund’s shareholders to pay additional amounts to your broker and their representatives. These fees are often buried in the “fine print” of a prospectus or contract. It may not be obvious that your commission-based advisor or broker is receiving them.    

Registered representatives are representatives of a stock broker / dealer. Agents are agents of insurance companies. Stock broker / dealers are self-regulated by the National Association of Securities Dealers. They do not have a fiduciary responsibility to their clients. They need only determine that a recommendation is "suitable". This lower standard, when combined with commission incentives,  increases the potential for conflicts of interest. You can identify a registered representative who is an employee of a broker /dealer. Their advertising material is likely to say, "Member SIPC" as well as one or more stock exchanges..

According to a recent SEC ruling, broker / dealers and their registered representatives may only provide financial advice that is "incident to" their primary activity of selling financial products. They may no longer provide comprehensive financial planning, unless they are willing to have their activities governed by the 1940 Act and assume a fiduciary responsibility. Insurance agents may not provide investment advice or comprehensive planning services, unless they are also appropriately registered as investment advisors.

FEE-BASED

Not to be confused with fee-only advisors, “fee-based” advisors charge fees for advisory services and also receive commissions for selling products. They are typically independent advisors who are affiliated with a broker / dealer as a registered representative and also are also a  representative of an investment advisor. They may also have a license to sell insurance as an agent of an insurance company. Many financial planners are fee-based, compensated both by sales commissions and by planning or investment management fees. This type of advisor can often also be identified by their promotional material which includes a line similar to, "Securities offered through ABC Company".