A Fee-only Financial Advisor is compensated differently than a traditional stock broker, or some financial advisors who don’t use a “fee-only” method of billing.
“Fee-only” most commonly means that instead of receiving compensation in the form of commissions for buy and sell transactions made on your behalf, the advisor is instead paid an annual fee as a small percentage of the assets under management.
When a broker or advisor earns a commission on each transaction there is a financial incentive for the broker or advisor to create transactions to earn he or she a commission, even when the best move would be to have made no transaction at all. This becomes a worrisome conflict of interest and such a conflict has existed in the financial services industry for a long time.
When your financial advisor receives fee-only compensation, there is no financial incentive for the advisor to create unnecessary transactions in your investment account. The advisor’s compensation will be the same whether a trade is made or not. Further, the only long-term way under a fee-only form of compensation for the advisor’s fee to grow is for the value of your portfolio to grow. Hence, both your goals and the advisor’s goals are in alignment.