The financial services industry is full of confusing titles, misleading terminology, and compensation structures that aren’t always clear to clients. Without the right information, it’s easy to mistake a salesperson for a true advisor.
This post will break down:
- What “fiduciary” really means
- The difference between fee-only, fee-based, and commission compensation
- Why many financial advisors are not fiduciaries 100% of the time
- How to ask the right questions about advisor compensation
What Does “Fiduciary” Mean?
A fiduciary is legally obligated to put your interests ahead of their own – 100% of the time. That means recommending strategies and solutions that are best for you, not the ones that pay the highest commission.
Unfortunately, most financial advisors in the U.S. are not fiduciaries all the time. In fact, according to FINRA data (2024), only about 12% of all advisors in the country are fiduciaries 100% of the time. (See page 5 of the FINRA Industry Snapshot report here.)
Many advisors can act as a fiduciary in some situations and as a salesperson in others. This “switching hats” problem is one of the biggest sources of consumer confusion.
Why Titles Don’t Tell the Whole Story
The financial services industry loves titles: financial consultant, wealth manager, financial planner, investment advisor representative, registered representative, Senior Vice President, Managing Director – the list goes on.
The financial services industry ALSO loves professional designations. There are well over 200 professional designations explained on the FINRA website here. While some designations (like CFP® practitioners) require rigorous education, experience, ethics commitments and ongoing continuing education requirements, others are self-designated or earned through a quick online course.
These titles alone don’t guarantee that an advisor will always put your interests first.
That’s why you have to dig deeper.
How Financial Advisors Are Paid — With Real-World Analogies
There are three main ways financial advisors get paid, and each comes with different incentives for how they work with you.
1. Fee-Only
A fee-only financial advisor is compensated solely by the fees their clients pay. They don’t accept commissions, referral fees from complementary professionals, or kickbacks from financial product providers.
Common fee-only structures include:
- Assets Under Management (AUM) – A percentage of the investments they manage for you
- Flat Fees – A fixed annual or quarterly fee
- Hourly Fees – Pay for time as needed
Analogy:
Think of a fee-only fiduciary like going to a doctor who charges you directly for their time and expertise—not for the medicine they prescribe. If you need treatment, they recommend the best option for you—whether it’s the most expensive or the cheapest—because their paycheck doesn’t change based on what you choose.
In the fee-only model, the “medicine” (financial strategy) is chosen solely for its effectiveness, not for the commission it might pay the advisor.
Organizations like the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network require members to be fee-only fiduciaries.
Beware! I’ve seen some advisors market themselves as a fee-only advisor, only to find that they also have an insurance license and sell insurance for a commission. This can, but not always, create a significant conflict of interest. Do your homework by checking your state’s Department of Insurance license lookup – California’s is available here – to see if your advisor has an active insurance license.
2. Fee-Based
“Fee-based” means the advisor charges fees and can earn commissions from selling products like insurance, annuities, closed end funds or mutual funds.
While they might act as a fiduciary when giving advice, they can switch to a sales role when recommending products. This creates a potential conflict of interest – one you might not even know exists unless you ask.
Analogy:
This is like going to a doctor who charges for the visit and earns a bonus every time they prescribe certain name-brand drugs. Sometimes you get the generic equivalent because it’s best for you, but other times they have a financial reason to steer you toward the brand that pays them more.
3. Commission-Only
Commission-only brokers are paid entirely by the companies whose products they sell. They must only meet the suitability standard, meaning the product must be “good enough,” but it doesn’t have to be the best option for you. or lowest-cost option for you.
Most large brokerage and insurance firms operate on this model.
Analogy:
A commission-only advisor is like a butcher. There’s nothing wrong with a butcher – they may be the best darn butcher in town, selling you the highest-quality cuts of meat. But at the end of the day, they earn their living only when you buy meat. You wouldn’t expect them to recommend you just eat a salad for dinner that night, even if it might be the healthiest choice for your diet.
It’s perfectly fine if someone is paid this way – hopefully they’re the best darn insurance or annuity salesperson out there. But you need to know they are compensated this way, and understand that the standard they have to meet is dramatically different from the fee-only fiduciary model.
How to Ask the Compensation Question
Ultimately, it’s up to you to choose the best financial advisor for your situation. But here’s an important caveat: how you ask the compensation question matters.
Don’t simply ask:
“What’s your fee?”
If you do, the advisor might reply, “My fee is 1% of the assets under management,” leaving out the fact that the mutual fund may have high internal fees or insurance products they recommend also charge their own fees – meaning your total cost may be far higher.
Instead, ask:
- “If I hire you, how much will I pay all in?”
- “What will be my total cost for all expenses – your fee plus the cost of the products/investments you recommend?”
This ensures you understand the true, total cost—including advisor fees, investment costs, and any other charges.
It’s also important to ask what services are included. You may need a true wealth management relationship which should go beyond just picking investments. You may want your advisor to help you with:
- Tax planning
- Cash flow planning
- Mortgages and debt strategies
- Estate planning
- College funding
- Retirement income planning
- Risk management
- Review of Employee benefits
- Budgeting
If you are looking for a comprehensive view of your financial picture then it should address all aspects of your financial life – not just your investments.
The Hidden Conflict: Dual Registration
A large portion of advisors are dually registered, meaning they can operate both as a broker (earning commissions) and as an Investment Adviser (acting as a fiduciary).
This setup allows them to market themselves as fiduciaries while still selling products for commission. Unless you read their disclosures carefully – or look them up on BrokerCheck – you might never know when the hat-switch happens.
How to Tell if an Advisor is Fee-Only and a Fiduciary
Here are three steps to confirm:
-
Ask directly: “Are you a fiduciary 100% of the time?”
-
Ask how they’re compensated: “Do you receive commissions, referral fees, or other incentives?”
- Verify: Look them up on BrokerCheck to see if they are registered as a broker, investment adviser, or both.
Here are a few examples of the type of information you’ll find on BrokerCheck. The names used are fictitious and for illustrative purposes only.
Commission only broker. Not a Fiduciary.
Fee-only advisor. A Fiduciary 100% of the time.
Dually registered as a broker and investment adviser and can “switch hats” at anytime. Not a Fiduciary 100% of the time.
Bottom line: Choosing a financial advisor isn’t about picking the fanciest title – it’s about finding someone whose legal obligation, incentives, and business model align with your best interests.
If you’re looking for clarity, confidence, and a partnership built on trust, consider working with Meritage Wealth Management.
I am a fee-only fiduciary – 100% of the time. I don’t sell products, accept commissions, or receive incentives or referral fees from third parties like attorneys or CPAs. My only compensation comes from the clients I serve.
My advice is objective, my compensation is transparent, and my experience spans 25 years.
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