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  • Writer's pictureRob Schmansky

Who are NAPFA Fee-Only Financial Advisors?

Organic; natural. Vegetarian; vegan. Terms can be critical to understand, especially when it involves getting what you meant to!

If there is a field where definitions that are seemingly obvious be can askew it is in personal financial advice. That is why it is critical to understand the terms, since legally they may define the relationship you have with your advisor much more than you may learn from speaking with them.

To start off The National Association of Personal Financial Advisors (NAPFA) blog, I would like to define a few terms NAPFA members feel strongly about providing clarity on – Fee-only, fiduciary financial advisor.

Fee-only is fairly straightforward, yet it is often confused with the similar sounding fee-based. The difference however can be as significant as making sure your waiter understands you are not only a vegetarian, but a vegan.

Fee-only indicates that your advisor is compensated solely by way of fees paid by you. There are no commissions received based on product recommendations, no revenue-sharing agreements with investment providers. Fee-based on the other hand is a fee plus commission relationship where payments from investment providers can influence what products are recommended.

Fiduciary is the relationship standard that fee-only advisors accept in their client engagements. Being a fiduciary requires your advisor to act only in your interest, without regard to other parties.

The alternative standard that many advisors are held to is ‘suitability.’ An example using the transportation sales industry would be you could rely on a fee-only advisor to give you advice on the best transportation to purchase, given your circumstances, needs, and objectives. If you instead received advice from a car salesperson, the standard of putting you into ‘suitable’ transportation could mean anything from a speedster you had no intention of spending so much for, to a junker that may cost an arm and a leg in maintenance.

Financial advisor is probably the most confusing concept here since it truly can mean many things. In its most encompassing definition it includes financial planners, insurance agents, stockbrokers, bankers, money managers, estate advisors, and anyone else that may provide advice on an area of your finances.

The problem with such an overarching definition is obvious. There are many actors seeking to give you financial advice, with different objectives. Few are independent, comprehensive, or unbiased in how they are paid for their advice.

The National Association of Personal Financial Advisors (NAPFA) is the organization whose advisors take a strict definition of the term financial advisor. Its membership is trained in comprehensive financial planning; each member is required to complete a peer-reviewed comprehensive financial planning analysis. NAPFA’s members are committed to ongoing education, as their CE requirements are among the strictest in the industry.

As a NAPFA member, we have signed fiduciary oaths to put our clients’ interests above all others. More on this topic can be found at NAPFA’s website, and the Focus on Fiduciary campaign.

NAPFA advisors also lead the way in their commitment to consumer education. We are excited to make the Fee-Only Planner blog at Forbes another avenue to educate and provide unbiased commentary and information to help make sometimes the often confusing world of financial lingo just a little more personal.

The preceding blog was originally published by Forbes. To view the original blog please visit our blog at Forbes.

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