A fee-based account is where a fee is charged based on the market value of the assets being managed. This is distinctly different than a transactional account where commissions are charged for every buy and sell transaction. When clients open a fee-based account, they sign a fee-based agreement that establishes the agreed upon fee, how the fees are calculated, when the fees will be charged, and which accounts are to be fee-based.
There are a number of benefits for clients in moving to fee-based accounts. Working on a “fee for service” basis, rather than a commission or transactional fee basis, means the best interests of the client are more aligned with those of the Portfolio Manager. If fees are based on the market value of the account, then the only way a Portfolio Manager will be compensated more is if they can grow your account in value. If your account declines in value, then so does the compensation paid to your Portfolio Manager.