How Does Form ADV Reveal How Your Financial Advisor Is Paid?

What Is the Difference Between Fee-Only and Fee-Based Financial Advisor Compensation?

A fee-only advisor is compensated by clients and does not receive commissions for selling financial products. A fee-based advisor may charge clients advisory fees while also earning commissions or other product-related compensation.

The label alone does not tell you whether an advisor is suitable for your needs. You should examine the services, total costs, experience, investment approach, and any disclosed conflicts associated with them.

What Is Form ADV?

Form ADV is the registration and disclosure document used by investment advisers. 

You can find it through the SEC’s free Investment Adviser Public Disclosure database by searching for the firm or individual. 

The form has three main parts:

• Part 1 provides registration information: It uses a check-box format to describe the firm’s ownership, business activities, clients, affiliations, and disciplinary events.
• Part 2 is the firm’s brochure: Written in a narrative format, it explains the firm’s services, fees, investment methods, conflicts, brokerage practices, and disciplinary information.
• Part 3 is Form CRS: This brief relationship summary describes services, fees, conflicts, standards of conduct, and disciplinary history. It also provides questions you can ask the advisor.

The SEC describes Part 2 as the primary disclosure document for investment advisers. It should help you understand how the firm operates, not serve as a substitute for asking questions.

Read our newest Quick Guide “How Does Evidence-Based Investment Management Help Retirees?”

Where Can I Find How an Advisor is Compensated on Form ADV?

Form ADV is typically lengthy and full of financial jargon, but you don’t need to read it from beginning to end to find the most relevant information. Start with these sections of Part 2A.

What Does Item 5 Say About Fees and Compensation?

Item 5 explains how the firm charges for its advisory services. Look for:

• The type and amount of advisory fee: The firm may charge a percentage of assets, an hourly rate, a flat fee, or another stated arrangement.
• How and when fees are collected: Determine whether fees are deducted from your account or billed separately, and whether they are charged in advance or arrears.
• Whether fees are negotiable: The brochure should disclose whether the stated fee schedule may be subject to change.
• Additional expenses: Advisory fees may not include fund expenses, trading charges, custody costs, or fees associated with outside managers.
• Sales compensation: Item 5 should disclose whether the firm or its supervised professionals accept commissions, mutual-fund trail fees, or other sales-related compensation.

Don’t stop after finding the advisory percentage. A 1% advisory fee, for example, may sit alongside fund expenses, transaction costs, custodial fees, or outside-manager fees. 

At a minimum, you should check whether the advisor you are considering discusses how they are compensated on their website. You should also ask the advisor you are interested in for an estimate of your all-in annual cost in dollars, based on your anticipated portfolio.

What Can Item 10 Reveal About Other Financial Activities?

Item 10 describes the advisory firm’s other financial-industry activities and affiliations. These relationships may create additional services for you, but they can also introduce compensation arrangements or incentives that deserve a closer look. 

The firm or a related professional may also be connected to: 

A broker-dealer: An advisor who is also a registered broker may earn commissions from securities transactions or product sales. Ask when the professional is acting as an investment advisor, when they are acting as a broker, and how their compensation changes between those roles. 

An insurance agency or company: The advisor or a related firm may receive commissions from the sale of life insurance, annuities, or other insurance products. Ask whether comparable products are available without a commission and how the recommended product was evaluated. 

Another investment advisor: The firm may refer clients to an outside advisor, use a subadvisor, or maintain an ownership interest in another advisory business. Determine whether it receives compensation for the referral or shares in the fees charged by that advisor. 

A bank or trust company: An affiliation may influence recommendations involving custody, lending, cash management, trust administration, or estate services. Ask whether you are required to use the affiliated company and whether other providers were considered.

An accounting firm: An affiliated accounting practice may provide tax preparation, consulting, or other services. This can make coordination more convenient, but you should understand which services are included in your advisory fee, which are billed separately, and how confidential information is shared. 

A sponsor or provider of investment products: A related company may create, manage, or distribute mutual funds, private funds, annuities, or other investments. Ask whether the firm receives additional revenue when you use those products and whether unaffiliated alternatives are available.

An affiliation does not automatically make a recommendation unsuitable. It does mean you should understand how the relationship works, who receives compensation, and whether the advisor has a financial reason to favor one provider, service, or investment over another.

Why Should You Review Brokerage and Referral Disclosures?

Item 12 discusses brokerage practices, including the selection of custodians or brokers. It may also describe research benefits, directed brokerage, trade aggregation, or other arrangements involving the firm’s brokerage relationships.

Item 14 addresses client referrals and certain forms of compensation involving outside parties. Review it to determine whether the advisory firm pays or receives money, services, or other economic benefits through arrangements with solicitors, promoters, referral partners, or related companies.

For example, a firm may compensate a third party for introducing new clients. It may also receive economic benefits from another organization connected to its advisory business. These arrangements are not automatically improper, but you should understand who is being paid, how much they receive, and whether the arrangement could influence a recommendation or referral.

Consider asking questions such as:

• What is the conflict? Identify the specific financial or business incentive. For example, does someone receive compensation when you become a client, select a particular service, or invest through a certain provider?
• Who benefits from the arrangement? Determine whether the payment goes to your advisor, the advisory firm, a related company, or the person who referred you. This helps you understand each party’s role and motivation.
• How could it affect the advice you receive? Ask whether the arrangement could encourage the firm to recommend one product, custodian, manager, or service over another, even when other reasonable choices are available.
• How much compensation is involved? A general disclosure that compensation “may” be received does not tell you its potential value. Ask whether the payment is a flat amount, a percentage, a recurring fee, or another type of economic benefit.
• How does the firm address the conflict? Look for safeguards such as written policies, supervisory reviews, client consent, or limits on the types of compensation the firm accepts. Ask how those safeguards work in practice.
• Are reasonable alternatives available? Find out whether you can choose another product, service provider, or account arrangement that does not create the same financial incentive, and whether the costs and services would differ.
• Will you pay more because of the arrangement? Ask whether the referral or compensation agreement increases your advisory fee, product expenses, or other costs, either directly or indirectly.

The goal is not to find a firm with no possible conflicts; it’s to understand the conflicts that exist, how clearly they are disclosed, and whether you are comfortable with the way the firm manages them.

Does Form ADV Explicitly Say “Fee-Only”?

Not always. “Fee-only” is not a universal checkbox that settles the issue on its own. You may need to combine information from several sections. No single document provides the full picture. Reading them together can help you identify differences, prepare more specific questions, and understand the total cost of the relationship before signing an agreement.

Review the following documents together to get a clearer picture of how your advisor is paid and which conflicts may apply:

• Form ADV Part 1: Check the advisor’s business activities, ownership, affiliations, and registration history. This section may show whether the firm or its professionals are connected to a broker-dealer, insurance business, or another financial company.
• Form ADV Part 2A, Items 5, 10, 12, and 14: Item 5 explains fees and compensation; Item 10 covers financial-industry affiliations; Item 12 describes brokerage practices; and Item 14 discloses certain referral arrangements and other compensation.
• The advisor’s Part 2B brochure supplement: Review the individual advisor’s education, experience, outside business activities, additional compensation, disciplinary history, and supervision, not just information about the firm.
• Form CRS: Use this shorter relationship summary to review the firm’s services, fees, potential conflicts, standard of conduct, and disciplinary history. It also includes suggested questions to ask your advisor.
• FINRA BrokerCheck: If the advisor is also registered as a broker, BrokerCheck may provide employment history, licenses, regulatory disclosures, and information about certain customer disputes or disciplinary events.
• Your advisory agreement and account-opening documents: These documents govern your actual relationship. Compare their fee schedule, billing terms, termination provisions, and services with the information disclosed in Form ADV and Form CRS.

No single document provides the full picture. Reading them together can help you identify differences, prepare more specific questions, and understand the total cost of the relationship before signing an agreement.

Watch: “The Truth About Generic Portfolios (And Why You Deserve Better) 

Does Being a Fiduciary Mean an Advisor Is Fee-Only?

No. “Fiduciary” and “fee-only” describe different issues.

A fiduciary advisor is required to act in a client’s best interest within the scope of the advisory relationship. Fee-only describes how the advisor is compensated. An advisor may have fiduciary obligations while working within a business that also has other compensation arrangements.

You should also ask when the advisor acts as a fiduciary. A professional may provide advisory services in one capacity and brokerage services in another. Form CRS can help you identify whether the firm offers both account types and how the obligations differ.

What Questions Should You Ask Your Financial Advisor?

After reviewing the ADV documents, bring specific questions to the conversation:

• Do you or any related company receive compensation from anyone other than your clients? Ask the advisor to describe commissions, referral payments, and product-related revenue.
• What would my total annual cost be in dollars? Include advisory fees, fund expenses, trading costs, custodial charges, and outside-manager fees.
• Can your compensation change based on the product you recommend? This helps identify incentives that may not be obvious from the headline advisory fee.
• Will you act as a fiduciary throughout our relationship? Ask whether that standard applies to every service and account being discussed.
• How do you address the conflicts listed in your Form ADV? A clear response should connect each conflict with the firm’s process for managing it.

These questions are especially relevant when your needs involve high-net-worth wealth management, retirement income, or longevity risk. A seemingly small difference in recurring costs can become more meaningful when applied to a large portfolio over many years.

How Does Winthrop Partners Approach Advisor Compensation?

Winthrop Partners operates as a fee-only fiduciary wealth management firm. We are paid by our clients and do not receive commissions for recommending financial products.

If you are searching for the “best fee-only financial advisors near me,” remember that “best” depends on your circumstances. Compensation is one consideration. Relevant experience, services, communication, investment philosophy, and your comfort with the team also matter. 

With offices in Orchard Park/Buffalo, New York, North and South Pittsburgh, Pennsylvania, Doylestown, Pennsylvania, and Miami, Florida, the Winthrop Partners team can assist you with financial and retirement planning services, along with tax and estate planning strategies. Let’s connect to discuss your financial needs.

Financial Advisor ADV Frequently Asked Questions

How do I find my financial advisor’s Form ADV?

Visit the SEC’s Investment Adviser Public Disclosure website, search for the firm or advisor, and open the current filing. You can review Form ADV, the firm brochure, and Form CRS at no cost.

Which section of Form ADV shows how an advisor gets paid?

Start with Part 2A, Item 5. It describes advisory fees, billing practices, additional expenses, and certain sales compensation. Items 10, 12, and 14 may reveal related affiliations and other compensation.

How can I tell whether my advisor receives commissions?

Search the brochure for terms such as “commission,” “sales compensation,” “12b-1,” “insurance,” “broker-dealer,” “referral,” and “other compensation.” Confirm the arrangement directly with the advisor.

Is a fee-only financial advisor always less expensive?

No. Fee-only describes the source of compensation, not the amount. Compare the full cost of the relationship and the services included rather than relying on the label alone.

Is fee-based the same as fee-only?

No. A fee-based advisor may charge advisory fees and also receive commissions or product-related compensation. A fee-only advisor is compensated by clients without commissions from product sales.

Does Form ADV show disciplinary history?

Yes. Form ADV includes required disclosures about certain legal and disciplinary events. You should check both the firm and the individual advisor through IAPD and, when applicable, FINRA BrokerCheck.

What is the difference between Form ADV and Form CRS?

Form ADV provides detailed information about an advisory firm’s business, fees, conflicts, and practices. Form CRS is a shorter summary intended to help you compare services, costs, conflicts, and standards of conduct.

Should my advisor provide Form ADV without being asked?

Investment advisers generally must provide required disclosure documents to clients in accordance with applicable rules. You can also request the current brochure or download it through the SEC’s public database.