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Linnard Financial Management & Planning, Inc.

Fee-Only Financial Planning and Investment Advisor

Types of Financial Advisors


Their Compensation and Responsibility to You

There are many different types of "financial advisors". The difference between them has become blurred, as banks, brokers and insurance companies all employ advisors to sell the financial products they offer. There are differences, though, in the level of responsibility each kind of advisor owes to you and in the way in which the advisor is paid.

Many advisors are compensated by commissions for selling their products to you. Some people may think that they pay little or nothing for this type of financial service, because the charges are often invisible, embedded in mutual fund fees or in the price of insurance and annuities. The client who is aware of this industry practice, and makes the effort to ferret out the information can consciously evaluate the true cost of the advisor's services and determine whether or not they are receiving worthwhile ongoing advice for the money they are paying.


“Fee-only” financial advisors, like LFM&P, are compensated directly by, and only by, their clients. They sell no products and receive no product sales fees, rebates or distribution fees from mutual fund companies. This business model is adopted so that the fee-only advisor can avoid the otherwise inescapable influence of monetary incentives when recommending financial solutions to you. Advisors who also provide investment management services will often charge a fee based on a percentage of the assets managed. Fee-only advisors may provide comprehensive financial planning services as well. The fee for planning services is typically billed on an hourly or fixed price basis or is included in the asset management fee.

Clients who work with fee-only advisors may still pay commissions to their broker, but can effectively select low-cost no-load or exchange-traded funds and use discount brokers. While fee-only compensation might appear more expensive at first glance, because the charge is direct and visible, it may actually result in lower overall costs than are paid to brokers through camouflaged mutual fund loads and distribution fees

Fee-only advisors are almost always registered investment advisors and are regulated by Securities and Exchange Commission or a state Securities Division. Registered investment advisors have a fiduciary responsibility to act in the best interests of their clients, as required by the Investment Advisers Act of 1940.


Commission compensated advisors, also known as "registered representatives" (of stock brokers), "agents" (of insurance companies), or "financial services manager" (of banks) receive payments for selling you stocks, bonds, mutual funds, insurance policies and annuities. These commissions are included in the price or premium that you pay. Some mutual funds also collect ongoing fees from the fund’s shareholders to rebate additional amounts to your broker and their representatives. These fees are often buried in the “fine print” of a prospectus or contract. It may not be obvious that your commission-based advisor or broker is receiving them.

Registered representatives are representatives of a stock broker/dealer. Agents are agents of insurance companies. Stock broker/dealers are self-regulated by FINRA, the Financial Industry Regulatory Authority. They do not have a fiduciary responsibility to their clients. They need only determine that a recommendation is "suitable". This lower standard, when combined with commission incentives,  increases the potential for conflicts of interest. You can identify an advisor who is a representative of a broker/dealer. Their advertising material is likely to say, "Securities offered through ..." one or more of the stock exchanges, as well as "Member SIPC".

Broker / Dealers and their registered representatives are supposed to only provide financial advice that is "incident to" their primary activity of selling financial products. They may not provide comprehensive financial planning, unless they are willing to have their activities governed by the Investment Advisers Act of 1940 and assume a fiduciary responsibility. Insurance agents may not provide investment advice or comprehensive planning services, unless they are also appropriately registered as investment advisors.


Often confused with fee-only advisors, “fee-based” advisors charge fees for advisory services and also receive commissions for selling products. They are typically independent advisors who are affiliated with a broker/dealer as a registered representative and also are also a representative of an investment advisor. They may also have a license to sell insurance as an agent of an insurance company. Many financial planners are fee-based, compensated both by sales commissions and by planning or investment management fees. This type of advisor can often also be identified by their promotional material which includes a line similar to, "Securities offered through ABC Company".