Fee-Based Financial Advisors Can Be Deceptively Costly - Spicer Capital

A Bear in Sheep’s Clothing – Beware the “Fee-Based” Financial Advisor

Fee-based financial advisors' compensation models are confusing and deceptive. You should understand them before engaging with a fee-based rep.

In no uncertain terms, I have warned of the dangers posed by the “bears” of the financial services industry to the unsuspecting investor. I have detailed specific questions everyone can explore to better understand the bears’ motives. Moreover, like Stephen Colbert, I cannot rest until the world truly understands the threat.


The Industry Reality

There is no value in the commission-based sales model other than to pad the pockets of the financial industry’s executives and shareholders. They have a thorough understanding of its value to their bottom line and will fight to preserve its upside-down logic.

I have counseled those approached by a financial representative paid through commissions to proceed with extreme caution. As you would, in fact, when encountering a bear.

Of course, there are some well-meaning, albeit misguided, commission-based reps out there. They, however, are the exception, not the rule. Unfortunately, the structure of their compensation is not conducive to them surviving in the industry nearly as long as their ruthless counterparts.

There are some well-meaning, albeit misguided, commissioned reps out there

Click to Tweet

Understanding this reality themselves, some commission-based reps have evolved into a new beast.

The theory of financial rep evolution

There is an adapted breed of financial representative just as dangerous as its traditional commission-based siblings: the so-called “fee-based” rep. I think of them like the proverbial bear in sheep’s clothing (...close enough).

Like a bear in sheep's clothes, the fee-based financial planning model can be deceptive!

Many become so distracted by their sheep-like exterior that they fail to see them for what they really are!

How they sell themselves

It's challenging for a commission-based representative to defend their compensation structure when grilled by an educated prospect.

For a fee-based advisor, however, it's much easier.

Fee-based advisors often give you the option to engage them on a traditional commission-only basis, or a fee basis (paying them a flat fee to construct your plan). 

This fee-based planning should not be confused with fee-ONLY - an entirely different structure (read: much better). On average, a detailed planner will spend about 15 hours on an initial plan (this can vary widely, based on the individual clients). As such, the one-time fees usually range from $1,500 to $3,000 for average cases and much more for complex clients.

Look, Mom! No sales pressure!

Fee-based advisors present this structure as a way to remove the dreaded sales aspect of financial planning engagements.

“You don’t have to worry about me trying to push anything on you. I’ve already made my money,” they comfort prospective clients.

From the conversations I’ve had with commissioned-turned-fee-based planners, this works. Prospects fork over the money and relax. The sales pressure is off.

Sounds great, right? Commission problem solved?

They would like you to think so.

Ironically, this makes selling the advisor's recommendations much easier - recommendations which then (still) pay these reps commissions. Nothing has changed at all on that side of the compensation equation!

Think of it like this: would you pay a car salesperson to sell you a car?

How is this any different?

What Really Changed?

This structure works wonders for the financial rep.

  • They can make even more money.
  • They’re insured against the risk of you not buying anything.
  • The client trusts their recommendations more.

Even more money!

If the clients don’t implement their recommendations, no problem, they already made their money. If the client does implement their recommendations, the rep stands to make even more money - they double-dip.

To address this concern, some convincing fee-based planners promise to reimburse the planning fee should the client ultimately implement their recommendations.

How altruistic!

Your planning fee is their planning insurance

See, the rep won’t double-dip. So what's the problem?

They'll just take a small payment today. If you don't do anything the rep says, at least they still made something. If you do implement their recommendations, however, they will take a much larger cut (even after reimbursing your fee). A win-win… for the rep, that is.

Astute on the importance of insurance, they have protected themselves! Now, they make money either way.

Greater client trust = greater sales = greater commissions!

But does this structure do anything to protect (insure) you, Mr. or Ms. Client, from reps’ sneaky sales tactics? Are we to expect the allure of high commissions to no longer influence their recommendations?

Because they collected a $2,500 planning fee from you, are they now immune to the temptations experienced by commission-based reps? For example, think of the temptation to sell high-commission annuities for which their recommendations might make them an additional $100,000. Do they no longer have the conflict of interest to perhaps push these products more than they should?

If they could be tempted before, they are just as tempted now. For you, the prospective client, nothing actually changed. In fact, if that fee causes you to let down your guard, the situation just got worse.

Like a bear in sheep's clothes, the fee-based financial planning model can be deceptively expensive!

An extreme example

An unscrupulous fee-based associate once bragged to me about the money-generating strategy he had created with his compensation structure.

After being paid a fee to construct a plan, he would identify four life insurance policies he could justify as "suitable" for his client. He would sell his client on the fourth-best policy, showing her all the ways he was saving her money while better protecting her assets!

When it came time for their annual review, he would show her a new policy he had "painstakingly uncovered" that would save her even more money while offering even greater protection! Of course, he was showing her the third-best option he had already identified the year prior.

Thrilled with his attention to detail, she happily paid the renewal fee for his planning services. He was obviously going above and beyond!

The pattern he would follow is clear. He boasted of the easy money - "low-hanging fruit," I believe he called it. He was double-dipping, and the client, completely satisfied, trusted his every recommendation.

Their Defense

Fee-based planners often defend their position by saying that on occasion, the right solution for clients just happens to be a product only sold with a commission. As fee-based advisors, they can sell these products to those in need.

Here they assume that advisors who choose to receive no commissions (fee-ONLY advisors) cannot offer these same products to their clients. This assumption is patently incorrect.

Insurance brokers

There is no reason a fee-only advisor cannot access whatever product they see as the best solution for their client. They can easily work with independent insurance brokers to pair their clients to the appropriate solution. The difference is, the fee-only advisor receives no commission or kickback on the sale.

An honest financial advisor should need no incentive for the right product solution to catch their attention.

Captive agents

Some captive agents might have a more compelling argument.

A captive agent is one who primarily must promote the insurance from their own company. In turn, that company does not allow any other reps to sell their products. State Farm and Northwestern Mutual are a couple of the most prominent practitioners of this agency structure.

Indeed, the aforementioned companies (among others) offer great products that are, for some, the best solution.

In that case, must you work with one of their commission-incentivized agents? Is there no other way to get their products?

There is no reason a fee-only planner cannot establish relationships with agents they trust within each of these captive agencies. Is the captive agent going to turn down the business?

Of course not!

There you have it. Your financial planner doesn't have to be able to receive commissions to sell all the many commission-laden products in the industry.

A proper insurance education

Finally, I've heard commission- and fee-based representatives argue that fee-only advisors don’t have as vast a knowledge of the nuances of the insurance industry.

Again, the validity of this statement would be unrelated to their compensation structure.

Fortunately for all advisors dedicated to holistic planning, the American College, the creator of the Chartered Life Underwriter (or CLU designation), does not discriminate. If you are interested in gaining a complete knowledge of the insurance industry, they will teach you!

The commissioned reps are right, though: you absolutely should find an advisor who understands insurance. It is a foundational element of any sound financial plan. Fortunately for you, it is not limited to their (commissioned) world.

In fact, even in the commission-based environment (in which I used to operate), most reps only understand the products they sell - and often only enough to make the sale, at that. Indeed, a former colleague, one of the top life insurance producers in my region, failed the Life Insurance course in the CLU curriculum twice in a single year. That was five years ago. All I know is that he still does not hold that designation. His problem (to be fair, he would admit this to his colleagues) was that he did not understand the other, “worthless” structures of life insurance.

In other words, he was not familiar with the policies which he did not sell, nor did he care to learn about them.


If you find yourself resisting the pressure to engage with a fee-based advisor, utilize the same advice given for commissioned reps. Be prepared, however, for additional layers of canned rhetoric about how their fee removes those conflicts.

In the guise of a conflict-free advisor, fee-based representatives deceive unsuspecting clients. They are still just as tempted to push their products as their commission-only counterparts.

Although commission- and fee-based financial representatives may sell products that are, indeed, the best solution for your particular situation, you do not have to engage them to receive those benefits.


Honestly, I sincerely believe there is no benefit to working with commission-based or fee-based financial representatives; there is only the additional sales pressure (or the perception thereof).

The only thing gained from working with a commission- or fee-based rep is sales pressure

Click to Tweet

Let me know your thoughts

  • Have you had any experience with a fee-based planner?
  • Did they use any other convincing language as to why you should engage them?
  • I am always open to hearing the other side!
  • Any additional advice that could help others?

Stephen Spicer

Stephen Spicer, CFP®, AEP®, CLU® is the founder and managing director of Spicer Capital, LLC. He is married to his high school sweetheart, and they have three amazing boys.