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Krikorian: The difference between ‘fee-only and ‘fee-based’ financial advisers

Krikorian: The difference between ‘fee-only and ‘fee-based’ financial advisers
Krikorian: The difference between ‘fee-only and ‘fee-based’ financial advisers

You’ve been managing your own money and have been pretty happy with your investment decisions.

However, the task has now become a little overwhelming, so it may be time to seek out the services of a financial adviser. If you want an adviser whose interests are aligned with yours, it’s important to know the method in which a financial adviser is compensated.

Financial advisers deserve to get paid just like any other service. However, if you want an adviser whose interests are aligned with yours, it’s important that you know not only how much your adviser will be compensated, but also the method in which he or she will be paid.

Financial advisers are generally compensated in one of three ways; commission-only; fee-only; and fee-based. Many investors are aware of the differences between commission-based advisors and “fee-only” financial advisers, however, many investors are not aware of the differences between “Fee-Only” and “Fee-Based” advisers. Although they sound very similar, there are significant differences between the two.

Fee-Only Advisers

The only source of compensation a fee-only financial adviser receives is from fees paid to them by their clients. Fee-only advisors get compensated in one of two ways; by the hour, or as a percentage of assets they manage for clients. That’s it.

Fee-only financial advisers do not receive any fees, compensation, or commissions from mutual fund companies, brokerage firms, or insurance companies. Fee-Only registered investment advisers such as Capital Wealth Management are legally required and morally obligated to disclose all fees and potential conflicts of interest with their clients.

Fee-Based Advisers

Unlike fee-only advisers who are solely compensated by their clients, fee-based advisors are permitted to receive commissions from the sale of certain products, in addition to receiving fees from their clients. Common products sold by fee-based advisers include life insurance, annuities, load (commission) mutual funds, limited partnerships, and wrap programs.

The financial industry is not known for transparency. It can be difficult to find the answers to simple questions such as how your financial adviser is paid  A chart comparing the various forms of compensation for fee-only vs. fee-based financial advisers can be located under “Investment Articles” on our website;

Before hiring a financial adviser, ask them to provide in writing how much it will cost to use their services. Be sure to ask for all “fees” including; front-end loads, back-end loads, commissions, 12b-1 fees, and any other fees that will make up the cost of their services. Ask them if they are going to be fiduciary in all the services they are going to provide to you “100 percent” of the time. If the advisor recommends a life-insurance product or annuity, they will provide a written explanation as to why they are recommending it, and why it is in your best interest.

At the bottom of the form, designate a space for their signature and date. If they are hesitant or reluctant to sign, you may want to consider looking elsewhere.

Martin Krikorian is president of Capital Wealth Management, a registered investment advisor providing “Fee-Only” investment management services located at 9 Billerica Road, Chelmsford. To schedule a free no-obligation consultation and portfolio analysis, call 978-244-9254, or email;

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