"My sister is an advisor just like you", my friend happily exclaimed.
My friend went on to describe how his sister joined a new firm because she "was sick of the dark side of the financial industry".
She was exhausted by selling her friends things they didn't really need. She was sick of meeting a commission quota first, and trying to help meet the client's needs second (if at all). She couldn't justify these sales any longer as a way to, "provide for her own children". So, she joined a local fee-based financial firm - one of the big, well-known ones.
His sister saw the light. I am happy for her. I hope her mental wellbeing improves.
However, I didn't have the heart to burst his bubble.
Fee-Based is not Fee-Only.
If your financial professional works in a fee-based firm, they can say they don't work on commission. Theoretically, a non-commission structure should better align the incentives of the advisor with outcomes that favor the client.
But that's the problem with "fee-based". Although a fee-based firm should be on your side of the table, they can play both sides.
A fee-based firm can still collect commissions and payments from sponsors of investment or insurance products, but they can also accept your fees too. Some would call it the best of both worlds (for the 'advisor')!
There is nothing wrong with a commission model, but commissions are often abused in the financial industry. Big financial companies shell out big bucks to 'advisors' to present high-commission, high-profit products in the best light possible.
I don't know if the fee-based firm above collects commissions or not, but that's the exact question you'll face when talking with a fee-based professional. You don't know!
If you ask a fee-based firm directly, "do you charge commissions?" They can say, "no".
A more complete answer might be, "no, not in this narrow line of work with you, but I might charge a commission if you buy something else". That's because they, or their partner, might still collect commissions if they sell you an insurance policy (for example). The line of work generating a commission can be a different business entity than the work you asked about above. They can work in both at the same time. They can build mental walls between their compensation, even if you freely cross those same boundaries.
Make sure you know who is paying for the advice you hear.
Look for Fee-Only Advice
As a Fee-Only Advisor, we cannot collect commissions or payments from anyone other than the clients we serve. There is no question.
My clients pay a known, transparent cost. We build a financial stronghold for their family that should be worth many times what they pay.
We don't usually make as much money upfront. (I've seen people who've paid 10-30 years of my cost, for one transaction with no follow-up required!) Nor do I get free dinners, nor trips to Hawaii, but I feel good about the work we do. It is also what I've instructed in my will for my family to pursue after I'm gone.
Read more about the different ways advisors charge for their services at www.openwindowFS.com/costs.