Fee-Based or Fee-Only — I Don’t Care and Maybe You Shouldn’t Either

Oct 22, 2013

Like many others, I have been reading with great interest the current flap regarding the CFP Board and their definition of fee-only (seecostbenefit CFP Board doubles down on ‘fee-only’ definition on Investment News [registration required] and Terminology on CFP Board). I have friends at the board. I am all for complete transparency and clarification. Frankly, I can see that each party has valid points in the ongoing controversy. In my opinion, what they are debating is missing the whole point.

Do you think the consumer really cares about infighting in the industry over the commoditization of our industry? Shouldn’t we be discussing objectivity, being a fiduciary or at least an advice-based model?

Who invented the Internet? Blame it on him.

When I started in the financial services industry (1985), daily stock prices were available on a Quotron machine in the office or listed in the Wall Street Journal the next day. The typical consumer didn’t have access to daily prices or market volatility, so information was key (by the way, the Dow was only 1,335 on the day I started work!). Most investors had a broker instead of an advisor, and financial planning was in its infancy. As Internet technology grew in the 90s, things like discount brokerage and day trading came into our lexicon and the investment industry became more commoditized.

Today, if I wanted to, I could do investment research through many sites on the Internet, find multiple discount brokers to execute my trades, and use various aggregation systems to create online statements. As I look around at their promotional efforts, there is little mention of anything that separates these players except price. I have to ask, do you want to be judged solely on price? If not, why would you use how you get paid as your differentiator?

How does your dog sitter get paid?

When I think of what separates a great advisory firm from the rest it is usually a commitment to advice for a specific clientele, a focus on creating a truly memorable client experience, and technology that supports the advisor to create a profitable, sustainable business. I don’t usually think of how they get paid. Yet ours is a business that sometimes tries to define itself that way. Last I checked, I didn’t go to my “retainer-based” attorney or have a meeting with my “hourly-rate” CPA (nor did I go to my unit-priced dry cleaner). I went to see professionals that had my best interest at heart, and who created an excellent client experience for me. I don’t define other professionals by how they get paid; I define them by the value they bring to the table. So ask yourself, “what value do I bring?”

What does the client value? A good place to start

For me it doesn’t matter if you consider yourself fee only, fee based or a hybrid. What you should care about is what the consumer wants and values. If you look at most consumer research, investors are looking for advice, not to be sold something. They are concerned about real-life situations surrounding cash flow, retirement, estate and college planning. They are looking for an objective voice that can help them through the maze of decisions and that can help them achieve their goals. They trust that you have done your due diligence, and found the right vehicles to help them achieve their personal goals. They also are looking for transparency of fees. In other words, charge what you charge, but be up-front about it. Make sure the client understands exactly everything they are paying for and what benefits they will receive.


Whether you are commission-based, fee-based, fee-only or somewhere in between, most would say that our industry is shifting to a fee model for advice and even some products.  In fact, according a recent PriceMetrix white paper, the number of fee-based accounts as a percentage of the average advisor’s business has been steadily increasing over the last four years.  Next week, Chris Rice and I will host a commission-to-fee webinar.  The webinar,  The Why and How of Converting To a Fee-based Business takes place on Monday 28th,  will present real steps to convert commission based accounts, consolidate to a single platform or clean up those orphan accounts that are still in your book.  Please join us on Monday.  Register here.


John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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