December 15, 2023

We’re a Fee-Only Firm – What Does That Mean for You?

We’re a Fee-Only Firm – What Does That Mean for You?

When doing your homework with respect to financial planning, you’ve probably come across both fee-only and fee-based advisors. You may have noticed that many articles highlight the fact that individuals tend to prefer fee-only advisors over fee-based advisors. But why?

In this article we’ll take a look at the differences between the two, and explore what being a fee-only firm means at Crossover Capital.

How Do Fee-Only Financial Advisors Operate?

Fee-only advisors receive compensation solely from the fees that clients pay directly for their services. They do not receive any fees, commissions, referral fees, kickbacks, or any other hidden forms of compensation from third parties. Fee-only advisors do not earn any additional compensation by pushing one investment product over another, or recommending a specific life insurance or mutual fund to their client.

At Crossover Capital, we are a registered investment advisor (RIA) with the U.S. Securities and Exchange Commission (SEC), and advise our clients according to our fiduciary responsibility. This means we must always act in our client’s best interests. The fee-only model is often regarded as one of the most transparent and objective fee structures available, and it fosters trust in the relationship between client and advisor.

How Do Fee-Based Financial Advisors Operate?

Fee-based advisors wear multiple hats. They can be an advisor AND a salesperson. While they too are compensated by client fees, they also have the potential to receive commissions for selling financial products (i.e. annuities and insurance) and securities (i.e. mutual funds and stocks) to their clients. These commissions have the potential to be quite substantial, which creates a situation where conflicts of interest may arise.

Fee-based advisors can also receive a referral fee if they refer a current client to another professional (i.e. a CPA or attorney). This again creates the potential for a conflict of interest, as the advisor may be more apt to recommend one professional over another, even if they are not actually the best fit for the client’s specific situation. Note: potential conflicts of interest can arise in both models.

fee-only firm cash hands

Advantages of a Fee-Only Financial Advisor

  1. The potential for fewer conflicts of interest – lack of any potential incentive to pitch certain products since there is no commission for recommending X product or Y fund, but conflicts of interest can arise in both models.
  2. Advice, advice, advice – solely focused on providing clients with the support, knowledge, and access to make informed decisions about their financial futures
  3. Payment structure flexibility – Fee-only financial advisors have the ability to charge a percentage of the amount money managed for a client. They also have flexibility to charge by the hour, have a flat fee for a service, or charge a retainer if those types of business arrangements make sense for a particular client. Calculating advisory fees as a percentage of the assets under management (AUM) means we’re with you when the market goes up AND when it goes down.

Learn More About How Fee-Only = Best Results for Our Clients

Building a foundation for success starts with steady support and a customized approach. Crossover Capital is here to provide the necessary tools required for growth and to be a champion for our clients’ success.

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