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What is a Fee Based Financial Advisor?

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  • Written By: Alexis W.
  • Edited By: Heather Bailey
  • Last Modified Date: 14 February 2020
  • Copyright Protected:
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A fee based financial advisor is a financial planner who charges a flat fee instead of a commission based on investments bought and sold. A financial advisor is a person who assists in making financial decisions and achieving goals such as saving for retirement or college or purchasing a home. Financial advisors with brokerage licenses purchase stocks, bonds, mutual funds and other investments for their clients in order to help those clients achieve designated financial goals. A fee based financial advisor charges a set fee for his services, often based on the size of the portfolio and monetary investments he is managing, instead of charging fees and commissions each time he purchases an investment.

Financial advisors serve a number of roles for their clients. Individuals may need assistance in determining how much money must be saved to accomplish various financial goals and ultimately to achieve financial independence through saving enough for retirement to provide a livable income. Financial advisors thus assist clients in determining how much money to allocate toward their different goals, and how those funds should best be allocated to take the appropriate levels of risk and earn the rate of return necessary and appropriate to a person's age and goals.

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Many experts believe a fee based financial advisor is a better choice than a commission based financial advisor. There is a danger that a commission based financial advisor will advise clients to invest in various funds or other investment vehicles that provide the financial advisor with the highest commissions, instead of in funds or investments that best meet a client's goals and risk tolerance levels. When a financial advisor is a fee based financial advisor, then there is no danger of conflicts of interest and the financial advisor is more apt to make investment decisions that best meet his client's needs, as opposed to decisions that maximize the commission earned.

There are different structures for setting the fees that a fee based financial advisor can use. It is common for advisors to charge a percentage of the total amount of money invested. Other fee based advisors charge their fees based on the performance of the portfolio, earning a higher fee or a bonus or percentage of profits made. This structure ensures that the advisors interests are best aligned with the client, since when the client's portfolio performs better, the fee based advisor earns a higher income.

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