A fee-only financial advisor is paid only by you, through an hourly, flat or asset-based fee, and takes no commissions on products. A fee-based advisor also charges you a fee but can earn commissions on products such as insurance, annuities or some funds. The names sound alike, but the commission piece creates conflicts of interest you should understand.
You're interviewing advisors and two of them describe themselves almost identically: one says "fee-only," the other "fee-based." Both seem knowledgeable and friendly. Before you sign anything, you want to know who else might be paying them when they recommend something to you.
What does fee-only mean?
Fee-only means the advisor's only compensation comes directly from clients. They do not receive commissions, sales loads or payments from the companies whose products they recommend.
Fee-only advisors typically charge in one of these ways:
- A percentage of assets under management (AUM), billed quarterly or monthly
- A flat annual retainer for ongoing planning and advice
- An hourly rate for a specific question or project
- A one-time fee for a written financial plan
Removing commissions does not remove every conflict. An advisor paid on AUM still earns more when you keep more money with them, which can color advice about paying off a mortgage or buying an annuity.
What does fee-based mean?
Fee-based means the advisor charges fees and can also earn commissions. Many fee-based advisors work at firms that are registered both as investment advisers and as broker-dealers, which the SEC calls dual registrants.
Investor.gov's guide to Form CRS explains the two business models. You typically pay a broker a commission or markup each time you buy or sell, and you typically pay an adviser an ongoing asset-based fee. A fee-based professional may do both, sometimes for the same client in different accounts. Investor.gov's advice: if your professional offers both, "make sure you understand when they are acting as a broker and when they are acting as an adviser."
Fee-only vs fee-based: side by side
The core difference is whether commissions are possible.
| Fee-only | Fee-based | Commission-only | |
|---|---|---|---|
| Who pays the advisor | Only you | You, plus product companies on some sales | Product companies, through what you buy |
| Can earn commissions? | No | Yes | Yes |
| Common fee types | AUM percentage, flat fee, hourly | AUM percentage plus commissions | Sales loads, commissions, markups |
| Main conflict to watch | Incentive to keep assets under management | Incentive to recommend commission-paying products | Incentive to trade or sell products |
| Who it may suit | People wanting ongoing advice with simple pay | People who want advice and may buy insurance or annuities | People who trade rarely and want specific transactions |
"Fee-only" and "fee-based" are descriptions, not legal registration categories, so always confirm what a firm says in its own disclosures.
How much do advisory fees cost over time?
Small percentage differences compound into large dollar amounts. Investor.gov's page on understanding fees shows a $100,000 investment growing 4% a year for 20 years under three annual fee levels:
| Annual fee | Approximate value after 20 years |
|---|---|
| 0.25% | $208,000 |
| 0.50% | $198,000 |
| 1.00% | $179,000 |
That is a gap of roughly $29,000 between a 0.25% and a 1.00% fee on the same starting amount and the same growth rate. The example is hypothetical and covers one layer of cost. If you also pay fund expense ratios or commissions, the total drag is higher. Our guide to index funds explains how fund costs add up on their own.
Are fee-only advisors always fiduciaries?
Fee-only advisors are usually registered investment advisers, and registered investment advisers owe clients a fiduciary duty on the advice they give. A fee-based professional acting as an adviser also owes that duty, but when acting as a broker on a commission sale they are held to a different standard, Regulation Best Interest.
That switch between roles is the practical problem. Ask in writing which standard applies to each account and each recommendation. Our guide on what a fiduciary financial advisor is covers the duty in detail.
How do you tell which kind of advisor you're talking to?
Don't rely on the label in a bio. Check the firm's own required disclosures and ask direct questions.
Read the firm's Form CRS
Every registered broker-dealer and investment adviser must give retail investors a relationship summary. Investor.gov says it covers services, fees and costs, conflicts of interest, the standard of conduct, and any disciplinary history. You can pull it up for free in Investor.gov's "Check Out Your Investment Professional" tool.
Check Form ADV Part 2
An adviser's Form ADV brochure, available on the SEC's adviser search, describes fee schedules and whether the firm or its people receive commissions or other compensation from product sales.
Look up the individual on BrokerCheck
If the person also holds a broker registration, FINRA BrokerCheck will show it. A broker registration is a signal that commissions are possible.
Ask these questions
Investor.gov suggests asking every professional how they get paid. Useful versions:
- Do you or your firm ever receive commissions, 12b-1 fees or revenue sharing from anything you might recommend to me?
- Will you act as a fiduciary on every account and every recommendation, at all times?
- What will I pay in total each year, in dollars, including fund costs?
- Do I have a choice about how I pay you?
Our guide to choosing a financial advisor has a longer interview checklist.
Which one should you choose?
The right structure depends on what you need, not on the label. If you mainly want ongoing portfolio management and planning, a fee-only arrangement keeps compensation simple. If you also expect to buy insurance or an annuity through the same person, a fee-based advisor may be convenient, as long as you understand which products pay them a commission and how much.
Either way, judge the advisor on qualifications, disciplinary history, total cost in dollars and how clearly they answer the questions above.
Frequently asked questions
Is fee-only better than fee-based?
Not automatically. Fee-only removes commission conflicts, but fee-based advisors can serve clients well too. What matters is that you understand every way the advisor is paid and that total costs make sense for the service.
Do fee-based advisors earn commissions?
They can. Fee-based means the advisor charges fees and may also receive commissions on products such as insurance, annuities or certain mutual fund share classes.
What does a typical AUM fee look like?
AUM fees are quoted as an annual percentage of the assets an advisor manages, often with lower rates on larger balances. Compare quotes in dollars per year, not just percentages, and include underlying fund costs.
Where can I see how an advisor is paid?
Read the firm's Form CRS and Form ADV Part 2, both available free through Investor.gov and the SEC's adviser search. These documents describe fees, commissions and conflicts of interest.
Related: What is a fiduciary financial advisor? · How to choose a financial advisor · How to spot investment fraud