How To Tell If Your Financial Advisor Is Really “Fee-Only”

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Many consumers are interested in having a fee-only financial planner, but they don’t know how to tell if the advisor they are considering is actually fee-only. If you think how your advisor is compensated matters, read on.

Financial advisors can say that they are “fee-based”  or imply that they are fee-only fiduciaries without actually being fee-only. In the United States is it very confusing. One way to be sure is to make sure that they are a NAPFA-Registered Advisor. Go to napfa.org to find a NAPFA Advisor in your area.

Another way is to look up your advisor’s online SEC registration. Here’s how:

Step 1: Go to the Division of Investment Management: Electronic Filing for Investment Advisers on IARD. Click on “Adviser Info on IAPD”:

How To Tell If Your Financial Advisor Is Really "Fee-Only" Step 1

Step 2: Click on the “Investment Adviser Search”:

How To Tell If Your Financial Advisor Is Really "Fee-Only" Step 2

Step 3: Choose either “Individual” or “Firm”, Enter their name and Zip Code, Keep the search tight, e.g. withing 5 miles, and click “Start Search”:

How To Tell If Your Financial Advisor Is Really "Fee-Only" Step 3

Step 4: Find your investment advisor and click on their “Investment Adviser Firm” link. Firms are listed both under their incorporation name as well as any names under which they are doing business. For example, we are incorporated as “Marotta Asset Management” but changed our business name to emphasize the fact that in addition to our core service of asset management we also do comprehensive wealth management:

How To Tell If Your Financial Advisor Is Really "Fee-Only" Step 4

Step 5: Your advisor will either be registered at the state level or with the SEC. Currently, firms with over $100 million in assets under management are required to register with the SEC. Click on the appropriate link to get to their registration:

How To Tell If Your Financial Advisor Is Really "Fee-Only" Step 5

Step 6: The Advisor’s SEC ADV filing will be displayed. You can find Compensation Arrangements under “Item 5 Information About Your Advisory Business.” You can also click on “View All” to see your advisor’s answers to every question.

How To Tell If Your Financial Advisor Is Really "Fee-Only" Step 6

Step 7: The compensation information is specifically under “Part 1A Item 5 Part E” which is entitled “Compensation Arrangements.” Be sure that (5) Commissions is not checked. If “(5) Commissions” is checked, your advisor is not a fee-only financial planner.

How To Tell If Your Financial Advisor Is Really "Fee-Only" Compensation Arrangements

It is always possible that a financial advisor answers incorrectly to the SEC. I’ve seen more than one commission-based financial advisors who failed to check “(5) Commissions” either by accident or on purpose. Sometimes they think, mistakenly, that incorporating the commission based side of their practice separately means they can avoid checking “(5) Commissions” on the firm which only charges the client. It just goes to show that you can’t regulate crooks.

Learn more about why we think being a fee-only fiduciary matters: “Fee-Only Financial Planner: What’s the Difference?” and “Ten Questions to Ask a Financial Advisor.”

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)