The Securities and Exchange Commission (SEC) has on their website a page entitled, “Investment Advisers: What You Need to Know Before Choosing One” which begins:

The Securities and Exchange Commission (SEC) receives many questions about investment advisers—what they are and how to go about choosing one. This document answers some of the typical questions we receive from investors about investment advisers.

Here is one of the questions and answer from that site:

Q: How do investment advisers get paid?

A: Before you hire any financial professional—whether it’s a stockbroker, a financial planner, or an investment adviser—you should always find out and make sure you understand how that person gets paid. Investment advisers generally are paid in any of the following ways:

• A percentage of the value of the assets they manage for you;
• An hourly fee for the time they spend working for you;
• A fixed fee;
• A commission on the securities they sell (if the adviser is also a broker-dealer); or
• Some combination of the above.

Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the investment advisers you interview to explain the differences to you before you do business with them, and get several opinions before making your decision. Also ask if the fee is negotiable.

How your advisor is compensated matters. Make sure you can follow the money and know how they are getting paid.

We believe that the SEC is being generous when they say that each compensation method has potential benefits. One of the only arguments in favor of your adviser being paid by a commission on the securities he or she sells is that you may be able to get personal advice for very small amounts of money. But of course that advice will be purchasing their commission based products.

If you have very small amounts of money, go to Vanguard and open an account with them. Use a balanced fund like the Vanguard Star Fund (VGSTX). If you have a little more money, consider our latest gone fishing portfolio which we update every year.

Any of the first three methods of an adviser getting paid (a percentage of assets, and hourly fee, or a fixed fee) is consider fee-only financial planning.

Any combination which includes commissions is not “fee-only” even if it is often called “fee-based.”

As fee-only financial planners, we are only compensated by our clients, and never by commissions.

For managed accounts, we charge as a percentage of assets under our management. You can view our fee schedule here.

We purposefully do not have any additional charges for our comprehensive wealth management services even though I believe that they deliver the greater portion of benefit to our clients. In the industry people think we are crazy to do this, but I don’t want to be continually selling our clients additional services when I would rather give them no disincentive to take advantage of them.

You can use the SEC website to determine if the advisor you are considering is truly fee-only.