Quick summary
Fee-only advisors are paid only by their clients. They take no commissions from the products they recommend.
Commission-based advisors are paid by product providers when you buy an investment, an annuity, or an insurance policy.
"Fee-based" is not the same as "fee-only." A fee-based advisor can charge you a fee and also earn commissions.
You can check how any advisor is paid in their Form CRS and Form ADV, which are free on the SEC's website.
When people start looking for a financial advisor, the first question is usually "How much will this cost?" We cover that in How Much Does a Financial Advisor Cost in the Philadelphia Main Line Area? The second question matters just as much: who is actually paying your advisor, and what does that mean for the advice you get?
What is a fee-only financial advisor?
A fee-only financial advisor is paid directly by clients and by no one else. The National Association of Personal Financial Advisors (NAPFA) describes fee-only planners as advisors who "accept no commissions for their work." Fees can be hourly, a retainer, a flat fee, or a percentage of the assets managed.
The CFP Board sets an even stricter standard for its certificants. A CFP professional may only use the "fee-only" label if neither they, their firm, nor any related party receives sales-related compensation tied to their client work. The rule took effect in October 2019, and enforcement began after June 30, 2020.
The key point is simple. A fee-only advisor earns the same amount whether you buy Fund A, Fund B, or nothing at all.
What is a commission-based financial advisor?
A commission-based advisor, often a registered representative of a broker-dealer, is paid when a transaction happens. This could be a commission on a mutual fund, a sales charge on an annuity, or a payment from an insurance carrier on a policy. The SEC's investor bulletin on advisory accounts explains that "commissions are based on certain transactions in your account."
Commissions are not automatically bad. The SEC has noted that for a long-term buy-and-hold investor who makes very few trades, paying one commission can cost less than an ongoing advisory fee. The concern is the incentive. When pay depends on what gets sold, there is a built-in pull toward products that pay more. NAPFA notes that this structure can create a conflict of interest.
What does "fee-based" mean?
This is where many investors get confused. "Fee-based" sounds almost the same as "fee-only," but it usually means the advisor charges you a fee and can also earn commissions on some products. The SEC's own bulletin notes that advisers "commonly earn money through client fees, commissions, or a combination of the two."
A fee-based advisor might manage your portfolio for an annual fee and then earn a commission on an annuity or life insurance policy they recommend. That isn't hidden, because it has to be disclosed. But it is a different relationship from a fee-only one.
How do fiduciary standards differ between the two?
Registered investment advisers owe clients a fiduciary duty under the Investment Advisers Act of 1940. In its 2019 interpretation, the SEC stated that this duty "comprises a duty of care and a duty of loyalty" and "applies to the entire adviser-client relationship."
Broker-dealers follow a different rule called Regulation Best Interest (Reg BI). It requires them to act in a retail customer's best interest at the time of a recommendation. It is a meaningful standard, but it is built around individual transactions, not an ongoing advisory relationship.
Many professionals are "dually registered" and can act under either standard depending on the account. It's fair to ask any advisor which standard applies to each account you hold with them.
Fee-only vs. commission-based: a side-by-side comparison
Who pays them: Fee-only advisors are paid by you, the client. Commission-based advisors are paid by product providers through commissions on what they sell.
Common fee types: Fee-only advisors charge a flat fee, an hourly rate, a retainer, or a percentage of assets. Commission-based advisors earn sales charges, commissions, and insurance payouts.
Main conflict to watch: With fee-only advisors, watch the fee level and what services it covers. With commission-based advisors, watch for an incentive to recommend higher-paying products.
Standard of conduct: Fee-only RIAs owe a fiduciary duty for the whole relationship. Brokers follow Regulation Best Interest at the time of each recommendation.
Where to verify: For fee-only advisors, check Form ADV and Form CRS on the SEC's IAPD site. For commission-based advisors, check Form CRS and FINRA BrokerCheck.
How can you check how an advisor is paid?
You don't have to take anyone's word for it. Every SEC-registered firm that works with retail investors must give you a Form CRS (Client Relationship Summary). This is a short, plain-English summary of its services, fees, conflicts of interest, and disciplinary history. Investment advisers also file Form ADV, which includes a brochure describing how the firm is paid.
You can look up any advisor for free on Investor.gov, which links to the SEC's Investment Adviser Public Disclosure site. You can look up brokers on FINRA BrokerCheck. Keep in mind that designations alone don't tell you much here. The SEC points out that private designations "aren't issued or overseen by federal or state regulatory authorities."
How AWX Financial is paid
AWX Financial is a fee-only financial planning and investment practice based near Villanova and Wayne, PA, on Philadelphia's Main Line. We work with clients locally and virtually nationwide. We never earn commissions, ever. We are paid only by our clients, never by fund companies, product providers, or insurance carriers.
We aren’t tied to any product provider or to a single fee model. We offer both flat-fee and asset-based (AUM) pricing and match the structure to how complex your situation is. Some households need ongoing portfolio management. Others mostly need planning, tax strategy, or a second opinion on investments they already have, such as a direct indexing strategy . We're a boutique firm by design. We keep our client count small so every relationship gets real attention.
Learn more about how we work with individuals and families.
Frequently asked questions
Is a fee-only advisor always cheaper than a commission-based advisor?
Not always. For an investor who rarely trades and needs little ongoing advice, a one-time commission can cost less. Fee-only advice is about removing product-sales conflicts, not about always being the lowest price.
Can a fee-only advisor still sell me insurance?
A fee-only advisor can recommend that you buy insurance, but they won't earn a commission on the policy. You would usually buy it through an insurance agent or a low-commission provider. Your advisor's role is to judge whether the policy fits your plan.
What is the difference between fee-only and fee-based?
Fee-only advisors are paid only by clients. Fee-based advisors charge client fees but can also earn commissions on certain products. The terms sound alike, so ask any advisor directly whether they or their firm ever receive commissions.
How do I know if my current advisor earns commissions?
Ask for their Form CRS and read the section on fees and conflicts of interest. You can also search their name on Investor.gov and FINRA BrokerCheck. If they're registered as a broker, commissions are likely part of how they're paid.
Are commission-based advisors fiduciaries?
When acting as brokers, they generally follow Regulation Best Interest rather than the full fiduciary duty that applies to investment advisers. Many professionals are dually registered, so the standard can depend on the account. Ask which standard applies to each of your accounts.
Sources
Kitces.com, CFP Board's Fee-Only Definition and Sales-Related Compensation Disclosure
U.S. Securities and Exchange Commission, Commission Interpretation Regarding Standard of Conduct for Investment Advisers (Release IA-5248), 2019
U.S. Securities and Exchange Commission, Chairman Clayton statement on Regulation Best Interest and the Investment Adviser Fiduciary Duty
Investor.gov (SEC), Investor Bulletin: Opening an Investment Advisory Account
Investor.gov (SEC), Making Sense of Financial Professional Designations
Investor.gov (SEC), Financial Professionals: Background Checks
FINRA, BrokerCheck
This article is for educational purposes only and is not individualized investment, tax, or legal advice.
Advisory services are offered through Core Planning, an SEC registered investment adviser. AWX Financial is a d/b/a of Core Planning. Registration does not imply a certain level of skill or training.
About the author: Daniel Farrell, CFA, CPA is the founder of AWX Financial, a fee-only wealth management practice. near Villanova and Wayne, PA. Before founding AWX, he managed endowment investment strategy for institutions representing over $1 billion in combined assets, in roles at Vanguard, Mercer, and OppenheimerFunds.
