Financial advisors that are not "Fee-Only" (such as brokers) may choose to offer you only those investments which pay the highest commissions. To illustrate this point, let’s consider an example. Let’s say Investment A is the best investment for you, but it offers no compensation to your commissions-based advisor. Investment B, on the other hand, is a worse investment which offers a 5% commission. Under the suitability standard, this advisor is not obligated to offer you Investment A, and may instead sell you Investment B in order to collect the commission on the transaction.
This is a situation that can be avoided with a "Fee-Only" advisor because third-party incentives do not play a part in the portfolio management process. Instead, the interests of the client can be placed first and foremost. Additionally, if you are dealing with a Registered Investment Advisor (RIA), then the advisor is held to the fiduciary standard which means that they are legally obligated to put the client's interests first at all times.
A "Fee-Only" advisor has fewer conflicts of interest than a strictly commission-based advisor or salesman, and is likely to provide you with more objective advice, fitting with a fiduciary standard of care. This does not mean, however, that a commission-based advisor cannot provide good advice. Many individuals chose to work with a "Fee-Based" advisor, who is primarily compensated for advice and management of investments, but may also assist you with the implementation of suitable insurance or annuity products. It enables you to get more done with one advisor. Please understand that there is not one perfect form of advisor compensation. If you get that queasy feeling from ANY advisor - fee-only or commission-based doesn't matter - RUN!!! And check them out before you work with them in the first place. Verify, verify, verify!
Fee only advisor are not limited by the scope or product or service they are offering. However they often cannot provide insurance or annuity products because they are commissionable and if those are appropriate for you, you will have to be referred to another provider to fill those needs.
Fee Only Advisor is the new model for financial advisors. Most major Broker Dealers are promoting this model for their employees. Some have even incorporated Annuities and REITS into their platform to provide comprehensive services. This is not a bad deal for clients. The real question is what you get for the fee. If you have a million dollar account you would basically qualify for breakpoints (discount) with a mutual fund company and pay no commission on the purchase of funds. Under a Fee Only model you would typically pay .75% to 1.25% in an asset based fee. This fee is each year and is based on the amount of assets you have in your portfolio. If you take the average of 1% then on a million dollars that is $10,000 in fees compared to $0 or more than likely .25% trail on the mutual funds. So if you are using fees to justify the Fee Only model compared to using one fund family and getting the breakpoints, the one fund family will save you money in the short run. The key question is what you get for your money. Here is where you need to do your research. If there is active money management then the fee only model is probably better, if it includes ongoing financial planning even better. I would ask any advisor that is providing services under a Fee Only Model to provide you with an Investment Policy Statement to clarify exactly what is expected from you and the advisor and then evaluate if it is a good fit for you. There is a third option and that is an Hourly Only Fee Only Advisor. This is an advisor that does not sell any products or gather assets under management. They only provide advice and you pay for the time. There are many models and you need to see what model you feel most comfortable with. There are very competent advisors providing services in under all three models. Your question is how you want to pay for the advice. Good advice is worth paying for. If you are comfortable with it then that is how you should move forward.