Paying Broker Commissions a Good Choice?


Question:  In last week’s column you talked about the problem with the fiduciary standard.  My financial advisor is an Independent CFP® practitioner.  He is an independent financial advisor associated with an independent broker dealer.  He is the hybrid you mentioned in your column.  In other words, he recommends mutual funds that charge a commission, but he also offers fee-only advisory services.  He explained to me the difference and that I can choose what is in my best interest. 

For example, I used to work with a fee-only RIA.  My portfolio was slightly more than $500,000.  The annual fee I paid was 2 percent per year.  That came to $10,000 per year, which really dragged on the portfolio’s performance.  My new advisor explained his services and suggested that I use the commission services instead of the fee-only services.  He explained that I would qualify for the $500,000 mutual fund breakpoint (he uses only one mutual fund company in his business) in which I would have to pay a one-time commission of 2 percent, but after that there would be no additional charges other than the mutual fund’s internal operating expenses and a small annual retainer fee he charges.   Clearly that was in my best interest and contributed to a far better performance of my portfolio.  While my new advisor is not a fee-only RIA, he provided me with a choice of a one-time commission charge and, in my opinion, he certainly acted in my best interest.

Answer:  You are fortunate to have found an advisor whom you trust and who places your best interest ahead of his own.  My intention in my column last week was to point out the differences between the fiduciary standard that governs fee-only, non-commission advisors and the suitability standard that governs brokers working for commissions, and the problem of applying the fiduciary standard to both without watering down the fiduciary standard.  It was not my intent to imply the generalization that all fee-only advisors are good and all brokers are bad. There is so much more to it than that.

An independent hybrid advisor like yours can be a good fit, as apparently it is for you.  As long as your advisor clearly explains and you fully understand all of his conflicts of interest, who regulates him (SEC or FINRA), how he gets paid (he’s not working for free), who is paying him, why he is choosing the investment vehicles he recommends over other possible choices, and how he will provide you with the service and support you need to meet your financial goals, you are getting your money’s worth.  I have written columns in the past on what to look for in an advisor and how to find one.  Fee-only was never a mandatory criteria. Fee-only or commission-based is an informed choice.

Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment manager and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to