True, with a fee-based account you are not only paying your advisor to manage your account in your best interests, you are also paying him or her to not recommend anything just for the commission. But with a fee-based account, the financial advisor is supposed to provide ongoing advice and service, in addition to buying and selling securities when he or she feels it is necessary.
When assets are placed into a fee-based account just for the sake of the advisor collecting the fee, with little or no ongoing advice, service and/or trading, it's called reverse churning.
In fact, if you do an Internet search of that term, you'll see article after article about how serious the securities industry's main regulators—the Securities and Exchange Commission and the Financial Industry Regulatory Authority—are taking this.
In deciding which type of account is better for you—fee-based, brokerage or possibly both—you and your financial professional will need to determine the level of ongoing service advice and investment management that you desire in order to make the most appropriate choice.
—By Mitch Goldberg, president of ClientFirst Strategy.