In Layman's Terms: Fee-Only


The phrase "fee-only" appears on this website 16 times. It describes the compensation structure that Plimsoll uses. It's also industry jargon that people not working in finance probably don't understand.

To know what "fee-only" means, you'll need to understand the "fee" part first.

Financial advisers use a wide variety of compensation models. All of these various structures are essentially made up of two types of pay: fees and commissions.

A "commission" is paid for selling a product. This product could be life insurance, an annuity, or even a mutual fund. These commissions are paid to the salesperson by the product company.

A "fee" is paid directly by a client to the financial adviser for financial advice. Fees can be paid through investment accounts (as a percentage of the assets that are being managed) or through hourly or retainer fees. Because fees are paid directly by the client, they are not tied to any particular product or investment choice.

This leads to three different descriptions of how financial advisers get paid...

  • Commission-only. These salespeople can not legally accept fees for advice, and they are only compensated by selling financial products.
  • Fee-based. These advisers are paid fees from clients and commissions from product companies.
  • Fee-only. These advisers are only paid fees directly from clients.

There are plenty of good, trustworthy people out there working under each of these compensation arrangements. Ultimately, you'll need to decide if you want to buy a financial product or pay for financial advice. There are certainly arguments to be made for and against each of the fee structures, and there's no shortage of grandstanding between advisers using each of the models.

Plimsoll is a fee-only firm. The reason is twofold: increased transparency and reduced conflicts of interest. At the end of the day, our mission is to develop long-term relationships with clients who know that the advice we give is always in their best interest and the fee-only compensation structure best aligns with that (in my grandstanding opinion).

Tyler Reeves, CFP®