Should You Avoid Fee-Only Advisors?

What is a “fee-only” advisor? A fee-only financial advisor is one who is compensated solely by the client with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product. Fee-only advisors may not receive commissions, rebates, awards, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the advisor’s planning recommendations.

FREE CHAPTER—Roccy DeFrancesco, JD, wrote a very compelling book called Bad Advisors: How to Identify Them; How to Avoid Them. He has allowed us to give away the chapter in his book on “fee-only” advisors. If you would like to read that chapter (recommended!), please click this link.

The sales pitch—the sales pitch of using a “fee-only” advisor at first blush sounds like it makes sense. Wouldn’t it be better to use an advisor who isn’t “biased” because they CAN’T make money from commissions or other types of fees paid when a client invests money somewhere?

I mean, if an advisor could choose between a loaded mutual fund or one that’s not, wouldn’t the advisor always choose the loaded fund because he/she can make more money? Wouldn’t it be better to work with an advisor who uses no-load mutual funds as well as no-load life insurance or annuities instead of ones that pay commissions?

The problem with “fee-only” advisors (while in theory the concept of an unbiased advisor makes sense), “fee-only” advisors are unfortunately far from unbiased. Just about every “fee-only” advisor is, in fact, extremely biased against commission-based products.

Let’s use Fixed Indexed Annuities with guaranteed income benefit riders as an example. In the market today, you can find Fixed Indexed Annuities that will guarantee a roll-up rate of return of between 6%-7% for up to 10 years coupled with a guaranteed income for life of 5.5% for someone kicking in income at age 70.

Here's an important question: Should anyone giving financial planning advice be familiar with Fixed Indexed Annuities with Guaranteed Income Benefit riders? Answer: Absolutely. To give retirement advice without knowing these products inside and out would be an outrage.

And here is the million-dollar question for this article: Will a “fee-only” advisor recommend an Fixed Indexed Annuity to a client? Answer: Doubtful.

Why is it highly doubtful? Because “fee-only” advisors have no reason to learn about Fixed Indexed Annuities.

Why? Because they really can’t recommend them because Fixed Indexed Annuities pay commissions.

While “fee-only” advisors could recommend Fixed Indexed Annuities, they’d have to charge the client a fee to give the advice. Why is that bad? Because, if the client would have purchased the Fixed Income Annuity from an advisor who could earn commissions, there would be no additional fee (and the chances that the insurance licensed advisors actually understands the product and will recommend the best one is much greater than the “fee-only” advisor).


While in theory the concept of using a “fee-only” advisor make sense (because they do not make money from commissions or sales loads), in reality, a “fee-only” advisor is one of the most biased advisors you can use (biased against commission-based products as well as ignorant of them).

Because virtually all of the best fixed annuities and life insurance policies in the market pay commissions, the chances of receiving the “best advice” on such products (which can be an integral part to a balanced and protected wealth-building platform) from a “fee-only” advisor is slim to none.

You can use a “fee-only” advisor at your own peril, but now at least you are forewarned.