Fee-Only vs Fee-Based: What Changes When an Advisor Moves

The short answer: Fee-only means the advisor and the firm are paid only through clients' fees, with no commissions of any kind; under the CFP Board's standards, a CFP professional may use the term only if neither they nor their firm receives sales-related compensation. Fee-based has no formal definition and usually describes an advisor who charges advisory fees and also earns commissions. An advisor who moves to an independent RIA stays fee-based while they keep earning commissions, through an insurance license or a broker-dealer registration; fee-only means giving up that commission income.

Fee-only vs fee-based at a glance

The table describes the usual structures; the compensation a particular advisor and firm actually receive decides which term applies.

What the CFP Board standard actually says

No federal securities rule defines either term, though an adviser's advertising may not be misleading under the SEC's marketing rule. The most specific standard is the CFP Board's Code of Ethics and Standards of Conduct, effective October 1, 2019, which binds CFP professionals. It allows a CFP professional to describe their compensation as fee-only only where the professional and their firm receive no sales-related compensation, and related parties receive none in connection with the professional services provided to clients.

Sales-related compensation, in the CFP Board's guidance, includes commissions and other incentives tied to the purchase or sale of financial assets. The test reaches the firm as well as the advisor: in a CFP Board case study, an advisor whose firm received revenue-sharing payments from mutual fund families could not call her compensation fee-only, even though she received nothing beyond her salary.

The CFP Board allows fee-based. Its guidance treats the term as equivalent to "commission and fee", and the Code requires a CFP professional who uses it to make clear that they are not fee-only.

What changes when an advisor moves

A move is often the moment an advisor decides which of the two to be.

• Ending the broker-dealer registration ends securities commissions, trails included. Trails and 12b-1 fees on past sales stop unless the advisor keeps a broker-dealer affiliation or the assets move to advisory accounts. Lapsing your Series 7 when you go RIA explains what happens to the registration, the two-year clock and the trails.
• Insurance commissions are the usual catch. Fixed insurance and fixed annuities can be sold with a state insurance license alone, so an advisor at an independent RIA can keep earning those commissions. Doing so keeps the practice fee-based under the CFP Board's test, and renewal commissions on existing policies count too.
• Keeping a broker-dealer is the hybrid route. A hybrid RIA keeps commission business possible and puts advisory business in the advisor's own firm, which is the fee-based model by design. What is a hybrid RIA covers how it works, and what is a dually registered advisor covers the registrations behind it.

How the two independent channels compare more broadly, from supervision to payouts, is set out in IBD vs RIA: what changes for a financial advisor.

What the book decides

How much of a practice sits in commission products, such as annuities and insurance, and how those clients would be served, decides which of the two fits and on what timetable. Some advisors change at once; others change over time, and many stay fee-based. What is an independent RIA sets out the structure most fee-only practices use.

Which path fits a particular book, and which firms and platforms support it, comes from a confidential conversation. Request an Introduction.