A few different developments have been occurring in the financial advice and services field, and one of those developments is the rise of the fee-based advisor, as opposed to the older style of commission-based sales.
The rise of fee-based and fee-only advisors is caused by the backlash of consumers and people seeking the help of financial professionals, who in the past have been known to sell products that they were getting commission on, potentially causing a conflict of interest. These financial products were not always the best investments for the clients, however they were giving a healthy commission to the advisor recommending them.
The trend has been happening rapidly over the past few years, with the amount of financial advisors adhering to the fee-based or fee-only structure expecting to rise by about 60% from 2015 to 2019.
The reason for the trend is the growing distrust toward financial professionals due to the recent stock market crashes, concerning practices, and the general view of financial industries. There is a lack of trust toward professionals that handle money, and a large amount of that distrust is caused by dishonest financial advisors that would give in to the urge to sell products that were not right for the client.
The fee-only and fee-based model of financial advice eliminates these problems in that the fee paid by the consumers eliminates the need for a commission on pushing products, therefore allowing the financial advisor to give a holistic view of the client and recommend products that are best for the client, and not necessarily for the commission for the advisor.
Because of the backlash by consumers seeking financial help, the government has recently stepped in and passed a fiduciary rule forcing advisors to act as a fiduciary to their clients. What this means is that the advisor would be forced to act in a client’s best interest, not in the best interest of the advisor. This would essentially force all advisors to follow the fee-based or fee-only revenue model.
It is worth noting that just because an advisor relies on commission does not mean that advisor is untrustworthy or that he or she won’t recommend the best product for your situation. But in many cases, it’s also best for the advisor for them to act as a fee-based fiduciary so the client will not suspect them of doing something that is not in their interest.
Becoming a fee-based advisor can help break down the barrier between advisor and client and help them to build a better relationship.
What’s your opinion of advisors that rely on commission and those that work on fee-only advice? Let us know in the comments.
Disclaimer: The content of this page is not meant to be financial advice. For specific information regarding your situation, consult your local financial advisor.