Fee-Only Vs Fee-Based Planning: Understanding the Differences for Long-Term Success

Fee-Only Vs Fee-Based Planning: Understanding the Differences for Long-Term Success

Confused about the difference between Fee-Only and Fee-Based planning? You’re not alone. Financial planning jargon can be daunting when you’re just getting started.
 

Understanding the difference between Fee-Only and Fee-Based, however, is important and could be the key to your long-term planning success.

What is Fee-Only Financial Planning?
 

Fee-Only financial planners are legally registered as investment advisors and have a fiduciary responsibility to you to create a plan in your best interest. Fee-only advisors cannot accept any compensation as a result of product sales. In other words, they can’t make a commission from specific investments they recommend you purchase. They are paid directly by you – and only by you – either through an hourly fee, a retainer fee, or an agreed-upon percentage of your assets that they manage.

As a result, in most cases, Fee-Only advisors have fewer conflicts of interest. They are more focused on your needs, rather than on selling you specific investments, since their compensation is not determined by sales volume or choice. A Fee-Only advisor will not try to steer you toward commissioned annuities; a Fee-Only planner’s advice must be completely free of attachment to financial products. The role of Fee-Only advisors is to only provide you advice that fits your current financial situation and your goals and therefore not recommend products and services that don’t support that goal and that are not the best choices for you.

What is Fee-Based Planning?
 

“Fee-Based” is a category the brokerage community has created to take advantage of the success – and attractiveness – of Fee-Only advising. Because the terms sound so similar, it’s easy to think they are similar, but there is a major difference between Fee-Based planning and Fee-Only planning.

In Fee-Based planning, the advisor is compensated with a set percentage of your assets instead of a retainer or a flat hourly fee. In addition to that percentage, Fee-based advisors can also accept commissions from financial products, annuities, and insurance products they sell you. Each time you purchase one of those products, their earnings increase.

This leads to a fundamental conflict of interest. Your advisor wants to earn as much as possible while you want someone to provide honest and trustworthy guidance.

If one fund offers advisors a significant commission and another one doesn’t but is better for you and your financial goals, how likely is it that the advisor will forego the opportunity to earn the commission by recommending the better fund?

That is why the legally-binding Fiduciary Rule that Fee-Only Advisors follow is so important: the definition of a fiduciary relationship is one based on trust.

How to Make Sure Your Advisor is Fee-Only
 

Before selecting an advisor, ask how and what their compensation plan looks like. Ask them to disclose what their compensation fees are in writing and whether or not they accept commissions. By choosing an advisor who provides Fee-Only services, you stand a greater chance of avoiding any conflicts of interests. Remember, Fee-Based advisors are obligated by their brokers or by specific deals to sell certain products. Fee-Only advisors are under no such requirements and have a legal, fiduciary, obligation to work for you, and you only.

Brad Sherman
Advisor
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Brad Sherman is a financial advisor and the founder and president of Sherman Wealth Management, LLC, an independent, fee-only, boutique Registered Investment Advisor that make ... Click for full bio

China's Push Toward Excellence Delivers a Global Robotics Investment Opportunity

China's Push Toward Excellence Delivers a Global Robotics Investment Opportunity

Written by: Jeremie Capron

China is on a mission to change its reputation from a manufacturer of cheap, mass-produced goods to a world leader in high quality manufacturing. If that surprises you, you’re not the only one.


For decades, China has been synonymous with the word cheap. But times are changing, and much of that change is reliant on the adoption of robotics, automation, and artificial intelligence, or RAAI (pronounced “ray”). For investors, this shift is driving a major opportunity to capture growth and returns rooted in China’s rapidly increasing demand for RAAI technologies.

You may have heard of ‘Made in China 2025,’ the strategy announced in 2015 by the central government aimed at remaking its industrial sector into a global leader in high-technology products and advanced manufacturing techniques. Unlike some public relations announcements, this one is much more than just a marketing tagline. Heavily subsidized by the Chinese government, the program is focused on generating major investments in automated manufacturing processes, also referred to as Industry 4.0 technologies, in an effort to drive a massive transformation across every sector of manufacturing. The program aims to overhaul the infrastructure of China’s manufacturing industry by not only driving down costs, but also—and perhaps most importantly—by improving the quality of everything it manufactures, from textiles to automobiles to electronic components.

Already, China has become what is arguably the most exciting robotics market in the world. The numbers speak for themselves. In 2016 alone, more than 87,000 robots were sold in the country, representing a year-over-year increase of 27%, according to the International Federation of Robotics. Last month’s World Robot Conference 2017 in Beijing brought together nearly 300 artificial intelligence (AI) specialists and representatives of over 150 robotics enterprises, making it one of the world’s largest robotics-focused conference in the world to date. That’s quite a transition for a country that wasn’t even on the map in the area of robotics only a decade ago.

As impressive as that may be, what’s even more exciting for anyone with an eye on the robotics industry is the fact that this growth represents only a tiny fraction of the potential for robotics penetration across China’s manufacturing facilities—and for investors in the companies that are delivering or are poised to deliver on the promise of RAAI-driven manufacturing advancements.

Despite its commitment to leverage the power of robotics, automation and AI to meet its aggressive ‘Made in China 2025’ goals, at the moment China has only 1 robot in place for every 250 manufacturing workers. Compare that to countries like Germany and Japan, where manufacturers utilize an average of one robot for every 30 human workers. Even if China were simply trying to catch up to other countries’ use of robotics, those numbers would signal immense near-term growth. But China is on a mission to do much more than achieve the status quo. The result? According to a recent report by the International Federation of Robotics (IFR), in 2019 as much as 40% of the worldwide market volume of industrial robots could be sold in China alone.

To understand how the country can support such grand growth, just take a look at where and why robotics is being applied today. While the automotive sector has historically been the largest buyer of robots, China’s strategy reaches far and wide to include a wide variety of future-oriented manufacturing processes and industries.

Related: Smooth Tomorrow's Market Volatility With a Smart Approach to Robotics & AI

Electronics is a key example. In fact, the electrical and electronics industry surpassed the automotive industry as the top buyer of robotics in 2016, with sales up 75% to almost 30,000 units. Assemblers such as Foxconn rely on thousands of workers to assemble today’s new iPhones. Until recently, the assembly of these highly delicate components required a level of human dexterity that robots simply could not match, as well as human vision to help ensure accuracy and quality. But recent advancements in robotics are changing all that. Industrial robots already have the ability to handle many of the miniature components in today’s smart phones. Very soon, these robots are expected to have the skills to bolster the human workforce, significantly increasing manufacturing capacity. Newer, more dexterous industrial robots are expected to significantly reduce human error during the assembly process of even the most fragile components, including the recently announced OLED (organic light-emitting diode) screens that Samsung and Apple introduced on their latest mobile devices including the iPhone X. Advancements in computer vision are transforming how critical quality checks are performed on these and many other electronic devices. All of these innovations are coming together at just the right time for a country that is striving to create the world’s most advanced manufacturing climate.

Clearly, China’s trajectory in the area of RAAI is in hyper drive. For investors who are seeking a tool to leverage this opportunity in an intelligent and perhaps unexpected way, the ROBO Global Robotics & Automation Index may help. The ROBO Index already offers a vast exposure to China’s potential growth due to the depth and breadth of the robotics and automation supply chain. As China continues to improve its manufacturing processes to meet its 2025 initiative, every supplier across China’s far-reaching supply chains will benefit. Wherever they are located, suppliers of RAAI-related components—reduction gears, sensors, linear motion systems, controllers, and so much more—are bracing for spikes in demand as China pushes to turn its dream into a reality.

Today, around 13% of the revenues generated by the ROBO Global Index members are driven by China’s investments in robotics and automation. Tomorrow? It’s hard to say. But one thing is for certain: China’s commitment to improving the quality and cost-efficiency of its manufacturing facilities is showing no signs of slowing down—and its reliance on robotics, automation, and artificial intelligence is vital to its success.

Want all the details? Download the ROBO Global Investment Report - Summer Brings Best ROBO Earnings in Six Years or visit us here.

ROBO Global
Robotics and AI
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ROBO Global LLC is the creator of the ROBO Global® Robotics and Automation Index series, which provides comprehensive, transparent and diversified benchmarks representing the ... Click for full bio