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What is the difference between fee-only advisors, fee-based advisors and commissioned advisors?

Fee-only advisors are Registered Investment Advisors or representatives of a Registered Investment Advisor. Sweetwater, Inc. is a Registered Investment Advisor and the people who work for Sweetwater are representatives of Sweetwater, Inc.

     ·        A Registered Investment Advisor and its representatives have a fiduciary responsibility to put the interests of their clients first.

     ·       A fee-only advisor is compensated solely by fees charged to clients.

     ·       Fee-only advisors have no inherent conflicts of interest, do not accept fees or compensation based on product sales, and generally provide more comprehensive advice. 

Fee-based advisors may be Registered Investment Advisors or representatives of a Registered Investment Advisor. They may also be registered representatives of a securities broker or securities dealer and may also be licensed by their state’s insurance commissioner for the sale of insurance.

     ·     Fee-based advisors are subject to all fiduciary responsibility rules when acting as a Registered Investment Advisor or as a representative of that Advisor. They may charge a fee to the client for this service.

     ·     Fee-based advisors are subject to all suitability requirements imposed on securities brokers and dealers and their registered representatives when receiving commissions on the sale of securities. They are subject to the rules of their state’s insurance commissioner when receiving commissions for the sale of insurance.

Commissioned advisors are paid solely on the sale of financial products and are subject only to the suitability standard when receiving commissions on the sale of securities.

     ·   "Suitability” means that the financial product being sold is deemed to be suitable for the customer at the time of the transaction. There has been a lot of litigation over the years as to the true meaning of “suitable”.

Fee-based or commission-based advisors generally don’t have a “duty to disclose” their method of compensation. This underscores the importance of understanding how advisors are compensated.  A financial advisor’s compensation method can create a conflict of interest between the client and the advisor.