Why Choose Fee-Only Over Commission-Based Advisor?

Morningstar update on the DOL Fiduciary Rule For those not involved in financial services, the Department of Labor Fiduciary Rule may not mean anything. But you should know what this is. It was an attempt by the Obama administration—now delayed by the Trump administration—to force “advisors” operating on commission regarding investments in IRAs to act in the best interests of their customers. That is, to act as a fiduciary. Now you’re probably asking: isn’t that what I hire an advisor for? To act in my best interests? Of course! Some advisers are already there. They’re called fee-only advisors. We at Capital Endurance Group are proudly fee-only advisors. The “only” part of “fee-only” is important, because it eliminates any financial incentives that might otherwise influence the decision-making of an advisor. When any kind of commission or payment is directed to the advisor or her firm for placing a client into a product, there is an inherent conflict between what product is most profitable for the advisor and what is the best product for the client. Commission-based advisors might favor products with the highest commission or distribution payment, and may want to trade your account to maximize commissions, thereby increasing your trading costs and potentially, taxes. Fee-only advisors will generally look to place their clients in the best products they can find, and trade as little as possible, to minimize costs. No doubt not all commission-based advisors are influenced as I’ve outlined above, but how are you to tell the difference? Avoid the dilemma entirely by simply choosing an advisor who embraces the fiduciary standard. The choices you make on this issue will likely be one of the most important for your retirement. Ask to see the advisor’s Form ADV Part 2 to check how they are compensated.