Asking for a Friend: How do I know if this financial advisor is giving me advice…or just trying to sell me something?
When you’re hiring a financial advisor, a broad umbrella term that could include everyone from insurance agents to financial planners, one of the most important and least understood details is how they get paid. An advisor’s compensation model can influence not only the type of advice you receive, but also whether that advice truly serves your best interests or is swayed by other incentives.
I care about this because, years ago, a relative followed the advice of a commission-based financial planner and purchased a “Class A” mutual fund that charged a 5.75% upfront fee plus a couple hundred dollars in ongoing annual costs. Later, they learned a very similar fund would have cost only a fraction of those fees, resulting in thousands of dollars more saved for their child’s college expenses.
There are three main compensation structures in financial planning: fee-only, fee-based, and commission-based. Let’s walk through what each one means, what to consider, and why it matters.
Fee-Only Financial Planning
What it means:
Fee-only planners are paid only by the client, either through flat fees, hourly fees, or a percentage of assets under management (AUM), typically 1%. Fee-only advisors don’t receive commissions, referral bonuses, or other incentives for recommending specific products.
Key features:
Fiduciary standard: A legal and ethical obligation requiring advisors to put your interests first, avoid conflicts of interest, and be transparent about fees.
The CFP® certification is one way (though not the only way) to identify professionals committed to fiduciary standards as those who hold the marks have to commit to a fiduciary ethical standard.
No sales incentives: They don’t earn money from selling financial products like insurance or mutual funds.
Transparent costs: You’ll know what you’re paying and what you’re getting.
What to consider:
You’ll typically pay directly out-of-pocket for services, rather than having fees embedded in financial products.
Some fee-only planners don’t sell products like insurance, which means you may need to coordinate with a separate insurance professional if you need coverage. Many fee-only financial planners will have trusted insurance brokers to connect you with.
Fee-Based Financial Planning
What it means:
Fee-based planners charge client fees and earn commissions from the financial products they recommend or sell. These products might include insurance, annuities, or certain mutual funds.
Key features:
Combines planning fees with product sales.
May act as fiduciaries when giving advice, but may switch to a different standard when selling products.
Can provide planning and product implementation under one roof.
What to consider:
Potential conflicts of interest: If a planner benefits financially from recommending certain products, it’s fair to research whether that advice is driven by what’s best for you, or by compensation incentives.
Less cost transparency: Commissions and internal product fees (like sales loads, surrender charges, or 12b-1 fees) may not always be obvious. For example, Class A mutual funds often have upfront sales charges (a fee paid when you buy the fund) plus higher ongoing fees compared to no-load funds that don’t charge those upfront fees.
Mixed standards of care: Some fee-based advisors are what's called “dual registered,” meaning they wear two hats: one as a fiduciary when giving investment advice, and another as a salesperson when selling products. In the salesperson role, they’re only required to follow the “suitability” or “best interest” standard, meaning the recommendation has to be appropriate at the time, not necessarily the absolute best option for you.
Neither of these standards requires them to act solely in your best interest at all times, the way a full fiduciary does. This switching of roles can be confusing, so it’s worth asking your advisor to explain what standard they’re following and when.
Commission-Based Financial Planning
What it means:
Commission-based advisors are paid entirely through product sales, typically by insurance companies or investment firms. They may offer basic financial advice for free, earning compensation only when you purchase a policy or investment product.
Key features:
No direct fee to the client for advice.
Often focused on selling specific products, such as life insurance or annuities.
May not provide comprehensive financial planning beyond advice that helps lead to the sale.
What to consider:
Sales pressure: Since compensation comes from product sales, there may be an incentive to recommend more expensive or less appropriate options.
Hard-to-spot fees: Many financial products include built-in charges that aren’t obvious to the buyer, such as surrender periods, mortality and expense fees, or investment loads.
Limited scope of service: The focus may be more on selling products than on building a full financial strategy.
Why This Matters
No matter how much a financial planner may care about their clients, incentives matter. The way someone gets paid can subtly (or not-so-subtly) influence their recommendations.
That doesn’t mean all commission- or fee-based advisors are bad, or that fee-only planners are perfect. But if you’re looking for advice that’s unbiased, transparent, and free from sales incentives, the fee-only model was specifically built to deliver just that.
Questions to Ask Any Financial Planner
Before you hire anyone, ask:
How do you get paid?
Do you act as a fiduciary at all times? (Translation - are you looking out for my best interests at all times?)
Are you compensated by third parties for recommending products?
Can you walk me through the total costs of working with you, including product fees?
Are there lower-cost alternatives to what you’re recommending?
If you’re worried about these questions seeming rude, they’re not.
And just a heads up: “Of course I act in my client’s best interests. I got into this field to help people!”…isn’t a sufficient answer, because good intentions aren’t the same as being legally required to act in your best interest at all times. If someone can switch between fiduciary and non-fiduciary roles, you deserve to know when and how that affects the advice you’re getting.
Final Thoughts
Financial planning is a powerful tool for working towards your goals. But the quality of advice depends not just on the person giving it, but also on how they’re paid.
I chose the fee-only model because I’ve seen firsthand what can happen when incentives aren’t aligned with the client’s best interest. My own relative paid thousands more than necessary for a mutual fund, money that could have gone toward their child’s education, because their planner was compensated through commissions.
I don’t ever want my clients to be left wondering if the advice they got was the best option or simply the most profitable for me. When you work with me, you know exactly how much I’m paid, and you can trust that my recommendations are built entirely around your goals.
If you're ready to work with someone whose only incentive is your success, I'd love to hear about your goals. Schedule a “getting to know you” call and let’s explore if we’re a good fit—with complete transparency about costs and no pressure to move forward.
