Unlike fee-only, financial advisors who are paid by the client directly (not through commissions), fee-based advisors often earn commissions on products sold as well as charge fees. Obviously, this is a conflict of interest and not in the best interest of the client.

In short, fee-based advisors are paid by their clients but also receive payments from other sources, such as commissions from financial product sales.

Brokers and dealers (or registered representatives) are required to sell products for commissions that are "suitable" to their clients.

Selecting a financial advisor? ask if they are a registered investment advisor and if they and their firm are fee-only advisors 100.0% of the time – meaning they never receive commissions! If they don’t receive any commissions, then both the advisor and the firm are fiduciaries.

If the advisor is a broker or a dealer, they are a registered representative, which means they are generally held to a lower legal standard, which requires them to sell products that are “suitable” to their clients.

If an individual is a registered representative of a broker/dealer or is a fee-based advisor, search for their firm’s form adv filing at the U.S. securities and exchange commission website: www.sec.gov. The adv document includes information that spells out how brokers at the company are compensated. Check form adv before retaining any financial advisor.  Form adv explains an advisor and advisory firm’s fee structure, but also lists any past misconduct.


The National Association of Personal Financial Advisors (NAPFA) defines a fee-only Financial Advisor as 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.  Neither advisors or their firms may receive commissions, rebates, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the individual’s planning recommendations.  "fee-offset" arrangements, 12b-1 fees, insurance rebates or renewals and wrap fee arrangements that are transaction based are examples of compensation arrangements that do not meet the NAPFA definition of fee-only practice.


The department of labor’s definition of a fiduciary demands that advisors act in the best interests of their client, and to put their clients’ interests above their own.  It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients.

Section 3(21)

A section 3(21) fiduciary investment advisor works in conjunction with the 403(b) retirement plan sponsor and investment committee to recommend the investment options for the 403(b) retirement plan investment platform, but does not have discretion over plan investments. However, the 403(b) retirement plan sponsor and/or investment committee retain fiduciary liability for investment decisions.

Section 3(38)

The 3(38) fiduciary investment manager will have discretion to select and oversee the investment options. The 3(38) fiduciary investment manager retains fiduciary liability for investment decisions. The 403(b) retirement plan sponsor’s and/or investment committee’s liability is limited to prudently select and monitor the 3(38) fiduciary investment manager as well as benchmark the reasonableness of their fees.

Source: napfa.org