What “fee-only” really means (and how to check it)
Fee-only, fee-based and commission advisers explained, with the exact Form ADV boxes that tell you how a firm is paid.
“Fee-only” is one of the most useful — and most misused — labels in financial advice. It describes how an adviser is paid, which tells you a lot about the conflicts of interest you are dealing with. This guide explains the terms and shows you where to check a firm's own answer in its regulatory filings.
Three ways advisers get paid
- Fee-only: the adviser is paid only by you — a percentage of the assets it manages, an hourly rate, a flat or retainer fee, or a combination. It does not earn commissions from the products you buy.
- Commission-based: the adviser (usually a registered representative of a broker-dealer, or an insurance agent) is paid by the companies whose products it sells — mutual fund sales charges, annuity and insurance commissions, trail payments.
- Fee-based: a mix. The adviser charges fees for some services and can also earn commissions on others. The name sounds like fee-only, which is why it causes confusion.
None of these is illegal, and a commission can be the cheapest way to buy some products. But commissions create an incentive to recommend one product over another, and fee-only advice removes that particular conflict.
The strict definition
The CFP Board's Standards of Conduct say a CFP professional may describe their compensation as “fee-only” only if the professional and their firm receive no sales-related compensation, and related parties receive none in connection with the services provided to clients (CFP Board guidance for fee-only advisors). Sales-related compensation is broader than commissions: it includes 12b-1 fees, revenue sharing, referral fees and similar payments.
What Form ADV tells you
Every registered investment adviser files Form ADV. Part 1A is a structured questionnaire, and several items speak directly to compensation:
- Item 5.E lists how the firm is compensated for advisory services: percentage of assets under management, hourly charges, subscription fees, fixed fees, commissions, performance-based fees, or other.
- Item 6.A lists other businesses the firm is actively engaged in, such as broker-dealer, registered representative of a broker-dealer, or insurance broker or agent.
- Item 7.A lists related persons in the financial industry — for example an affiliated broker-dealer or insurance company.
Our directory includes a firm only if it did not check commissions in Item 5.E. That is a useful first screen but a narrower test than the CFP Board's: a firm could report no commissions itself while an affiliated insurance agency earns them. That is why each profile also shows the firm's Item 6.A activities.
Read the brochure
Form ADV Part 2A — the firm's “brochure” — explains in plain English how the firm charges, what it costs, and what conflicts it has. The SEC's investor bulletin on the adviser brochure and brochure supplement explains what each section covers. Look especially at the sections on fees and compensation, other financial industry activities and affiliations, and client referrals and other compensation.
Five questions that settle it
- “How do you, your firm and any affiliates get paid if I become a client?”
- “Will you ever earn a commission, 12b-1 fee or referral fee on anything you recommend to me?”
- “Are you or anyone at your firm also licensed to sell insurance or annuities?”
- “Will you act as a fiduciary for all of my accounts, all of the time?”
- “Can I see your Form CRS and Part 2A brochure?”
Registered investment advisers owe their clients a fiduciary duty under federal law — a duty of care and a duty of loyalty — as the SEC set out in its 2019 interpretation of the standard of conduct for investment advisers. Fee-only is about how the adviser is paid; the fiduciary duty is about how it must act. You want both.
Where to check
Look up any firm or individual on the SEC's Investment Adviser Public Disclosure site, and check brokers on FINRA's BrokerCheck. Every listing on this site links straight to the firm's IAPD summary.