Certified Financial Planner (CFP) Practice Exam 2025 – All-in-One Study Guide for Exam Success!

The fee-based arrangement is commonly used by CFP® professionals when managing client investments because it aligns the interests of the advisor and the client more closely. In this model, clients pay a fee that is often based on a percentage of the assets under management (AUM). This setup incentivizes the financial planner to grow the client's investments, as their compensation is directly tied to the performance of those investments.

The fee-based structure also provides transparency, allowing clients to understand how much they are paying for services without the potential conflicts associated with commissions. This can be particularly appealing for clients who seek a fiduciary level of care, as it underscores the advisor's commitment to acting in the client's best interests.

Understanding the differences in compensation models can help clients make informed decisions about their financial planning, especially distinguishing between various arrangements like commission-based, which can lead to potential conflicts of interest, and the hybrid model, where both fees and commissions are involved.