Every financial advisory compensation model has conflicts, despite the fact that “fee only” is often promoted as conflict-free, says Financial Planning Association President Shannon J. Pike.

Advisors promote themselves as “fee only” because it is seen as a “better” compensation method in the industry, whether that is a flat fee, a monthly or yearly retainer, or some other model. But charging fees, rather than commissions on products sold, does not eliminate conflicts, FPA leaders told members of the press at the FPA annual conference in Nashville, Tenn.

“The way an advisor is paid should not be the only factor a prospective client goes by when looking for an advisor,” Pike says. “A consumer can consider it, but it should not be the starting point.”

Any business compensation model is legitimate, and any model, from commission to a percentage of assets under management to a flat fee, can have conflicts. A flat fee could have a conflict because the advisor is paid the same no matter how much work he or she does. An AUM model means the advisor is paid less if the client spends money or pays off debt, explains Evelyn Zohlen, the FPA’s 2018 president-elect.

A search for an advisor should start by determining whether he or she has a CFP designation, and then seeing if the advisor being considered has earned other designations or has fields of expertise, says Pamela Sandy, FPA chair. Clients just need to be fully aware of how a financial planner gets paid, adds Pike.

On the Department of Labor fiduciary rule, and the possibility that the Securities and Exchange Commission will draft its own standards, the FPA is continuing its discussions with both organizations.

“As a practitioner, I just want to see the two rule-making activities coordinated,” says Pike.

The FPA and Certified Financial Planner Board of Standards Inc. also announced at the Nashville conference a collaboration to promote the CFP Board’s Center for Financial Planning and to encourage membership in the FPA. The two organizations will work to increase diversity in the profession, the leaders say.

To read more stories , click here