Earning the fee: advantages of an independent, fee-only or fee-based financial advisory firm.

• Author: McKimmie, Kathy
• Position: WEALTH MANAGEMENT

WITH A SMORGASBORD of investment and financial planning advisor options, from trust and personal banking departments in banks to brokerage houses to a growing number of independent financial advisors, those with money to invest never had so many choices. Increasingly, Indiana's independent fee-only and fee-based firms are convincing investors that they're the way to go.

"Part of the confusion these days is that individual investors are more and more seeking independent advisors," says Mark Pettinga, president of Pettinga Financial Advisors, a fee-only firm in Evansville. "Merrill Lynch and Smith Barney are evolving more toward fee-based, but the issue I have with that is that they are still selling product." The SEC considers his firm a fiduciary, he says, on the same side of the fence as the investor, free from conflicts of interest, and he is a registered investment advisor with the SEC. He wants brokerage firms held to the same standard. "They have fought tooth and nail against it."

The fee-only model generally means all revenues are based on fees from clients. They can be hourly or flat fees, such as for developing financial plans, or charging a percent of assets under management. Some get an additional fee for performance. But to use the term, there should be no income from other sources. The term "fee-based" generally means firms charge fees too, as the name implies, but derive at least some of their income from commissions or sources other than client fees.

Pettinga founded his company 12 years ago in his wife's hometown after a stint at fee-only pioneer Oxford Financial Group, Indianapolis, four years in tax planning for high-net-worth individuals at Ernst & Young, and a couple years in Bank One's trust office settling estates after law school.

"I've never sold product," he says. "I've come from the technical side." He suggests people ask about a firm's technical capacity to do the financial planning work. "I actually check all the numbers, I don't rely on software. Most don't have technical backgrounds, they haven't prepared hundreds and hundreds of tax returns."

Unlike most fee-only firms, Pettinga's has no minimum asset requirement, an approach his father's experience served to solidify. As a young chemist for Eli Lilly in Indianapolis, he was turned down for a loan at one bank, but a second bank took the risk. Later, the first bank solicited him for his business, but he remained loyal to the one that took a chance. Pettinga says...