How Performance Fee Only Financial Advisors Are Different

02/02/2022

What is a performance fee-only financial advisor anyhow?

Advisor compensation and performance fee-only financial planning can be a confusing topic. These days, it feels like every advisor website touts the fact that they have your best interest at heart. To further complicate things, there are advisors who call themselves fee-only, and others who classify themselves as fee-based. It's becoming harder and harder to know who's who, and what different fee structures mean for you - the one who's depending on their advice to lead a successful financial future.

What Does Performance Fee-Only Mean?

Performance Fee-only financial advisors are only compensated by the fees their clients pay IF they deliver their clients the agreed investment portfolio performance.

Other advisors who aren't fee-only are compensated by:

  • Commission from investment sales
  • Commission from insurance product sales
  • Commission just to recommend a specific investment (fund, etc.), or insurance product
  • Commission from stock trades

Performance Fee-only advisors are only compensated by :

  • Percentage of assets under management (AUM)
  • Hourly rates (i.e. tax advice)

That's a long way of saying that commissioned advisors get paid by companies to sell you a product where performance fee-only advisors are only paid by you to provide you the agreed investment portfolio performance.

These investment and insurance decisions are often what you are basing your entire financial future on, and there is no guarantee that advisors who receive a commission are always acting as a fiduciary when they recommend that you purchase a particular financial product. That is a nerve-wracking thought.

At expatwealthatwork, we have a performance fee-only financial planning and investment management practice. We don't receive commissions from selling financial products or making specific recommendations. We believe this is in our client's best interest.

What Other Fee Structures Are There?

There are two different fee structures that advisors typically stick to:

  • Performance Fee-only
  • Commission

Things can get a little bit confusing if you're interviewing a variety of financial advisors. Performance Fee-only and commission advisors aren't paid in the same way. Performance Fee-only advisors are only compensated by the fees their clients pay them IF they deliver the agreed performance for their investment portfolio. Commission advisors are paid a commission only based on the sales they make.

Understanding Conflicts of Interest

All of this to say that commission advisors are sharks who are out to steal your money and sell you financial products you don't need. To understand why commission advisors may not be acting as a fiduciary (even if they're fantastic sales), we need to take a second to go over conflicts of interest in the financial planning profession. It's obvious that a commission financial planner has conflicts of interest that are important for you to fully understand. If they're making financial recommendations but are getting paid more for selling one product over another, they are financially incentivised to recommend a product that will earn them more money - which may not necessarily be the same product that will be best for your particular financial situation. When the push comes to shove, they have a vested interest in using the investments and financial products that they get paid to recommend. In our opinion, that's too big a risk to take!

The Fiduciary Standard

As performance fee-only advisors, we always abide by the fiduciary standard. This means that we're legally obligated to act in your best interest at all times. We are advisors who abide by the fiduciary standard and so we put our client's best interest ahead of our own, in every situation.

When you are interviewing advisors, you want to ensure that they are adhering to the fiduciary standard, and that means finding an advisor who reduces conflicts of interest, discloses conflicts of interest if and when they arise, and who is paid only by you.

Why Does It Matter?

At expatwealthatwork, we want to always put your best interests first. That's why we are performance fee-only and abide by the fiduciary standard. We want our clients to know that any recommendations we make are rooted in a desire to help them live their best financial future

Have questions? Reach out: info@expatwealthatwork.com  - we would love to walk you through our fee structure and what it means to be a performance fee-only financial planning practice.