By The Galecki Financial Management Team
Trying to navigate the complicated world of personal finance on your own can be overwhelming. Many individuals turn to financial advisors for help in making wise financial decisions. Advisors can provide the guidance and professional knowledge needed to optimize finances and pursue long-term goals.
But there’s a significant upside to working with a Fee-Only financial advisor that most people don’t know about. Understanding the way that financial advisors are paid (and specifically Fee-Only financial advisors) gives you an immediate head start on pursuing your financial goals.
We wrote this article to explain, in simple terms, financial advisors’ compensation structure and why it’s such an important concept to understand.
How Are Financial Advisors Paid?
First, let’s go over the three primary ways financial advisors can get paid:
1. Commission-Based
Commission-based financial advisors make money on products they sell, whether mutual funds, insurance policies, or any other financial product.
Unfortunately, this type of compensation structure is often plagued by conflict of interest because advisors can be tempted to recommend products based on higher commissions and not necessarily based on how the product aligns with the client’s needs. For the client, this can result in increased costs, decreased returns, and questionable investment performance.
2. Fee-Based
Another type of compensation structure for financial advisors is called fee-based. Like a commission-based structure, financial advisors can earn commissions from the sale of financial products. The difference with fee-based advisors is that they can also earn income from fees charged directly to the client.
While this payment structure offers versatility, it’s troubled by the same conflict of interest as a commission-only payment structure. Therefore, it’s essential to take time to carefully review the fee structure of the advisor you’re considering. Their compensation structure has a direct impact on the quality of advice you receive.
3. Fee-Only
The last type of financial planning payment structure is Fee-Only. Since this is our structure at Galecki Financial Management, we believe this is consistently the smart choice for discerning clients.
A Fee-Only financial advisor is compensated solely by their clients. That means they’re paid with a flat fee, an hourly rate, or a percentage of the assets under management (AUM).
Because the advisor’s income is not dependent on the sale of certain financial products, this simple fee structure reduces the possibility of conflicts of interest. This strategy helps the advisor’s financial-product suggestions only take the client’s needs into consideration.
The Added Value of Partnering With a Fee-Only Financial Advisor
As explained above, Fee-Only financial advisors offer a unique added-value to their clients because they’re not incentivized by commissions. They can help their clients make well-informed financial decisions by focusing solely on providing objective advice.
But there’s another reason why Fee-Only financial advisors are superior. They often have a more in-depth understanding of complex financial strategies. That knowledge allows them to offer full financial-planning services, such as risk management, retirement planning, estate planning, and insurance strategies. They can guide their clients toward a comprehensive financial plan that meets their long-term goals.
The bottom line is that clients who consult with a Fee-Only financial advisor can feel confident knowing that a dependable professional is dedicated to their financial well-being.
Reach Out Today!
When you’re ready to partner with a trusted professional to help you navigate your financial future, we’re here to help.
Our team at Galecki Financial Management provides our personalized financial planning services on a transparent, Fee-Only basis. As Fee-Only financial advisors (and members of NAPFA, National Association of Personal Financial Advisors), we are paid directly by our clients—and only by our clients. We don’t receive any type of kickbacks or commissions for recommending certain securities or investments.
To schedule a meeting, call (260) 436-8525 or email [email protected].
About Galecki Financial Management
At Galecki Financial Management, we help individuals and families confidently pursue their financial goals. We’re anything but a business-as-usual wealth management firm. We’re different. Friendly. Casual. And really good listeners. Indeed, that’s a big part of what makes us different. Everything we do is based on what we hear from you, because our experienced team of professionals specializes in comprehensive financial planning, cash flow analysis, IRA rollovers, financial services, money management, estate planning, retirement planning, and advising. We help you identify your short- and long-term goals, and then we work together to pursue them. Lastly, and most importantly, we’re Fee-Only, meaning we’re only compensated for our time. Our only incentive is to help you succeed.
INDEX RETURNS
Almost all indexes moved higher in the third quarter. Markets are cheering the AI Revolution and the potential for earnings expansion. The S&P 500 was up nearly 8% and is now up 13.72% on the year. The Russell Midcap Index was up nearly 5% over the last three months and is now up 9.09% on the year. The Russell 2000 Index (Small Cap Stocks) had a huge quarter advancing 12.39%. Gold and Silver have continued a strong surge so far this year and have helped the commodity index post a gain of 9.38%.
International stocks continue to be the big story with strong local performances enhanced by a weakening dollar. The MSCI EAFE Index gained 4.83% in the quarter and is now up more than 25% on the year. Emerging Markets went on a tear in the third quarter advancing 10.08% to bring the 3-month return up to 25%. Crypto currencies such as Bitcoin and Ethereum have also continued to move higher with returns north of 25% on the year.
Bonds continued to offer solid returns in the quarter and are now up 6.13% on the year. Global bonds rose again and are now up 7.43% on the year. Bonds should continue to perform well over the next 18 months if the Federal Reserve continues cutting short-term rates.
ECONOMIC REVIEW AND OUTLOOK
The economy continues to expand even though there are many challenges. Tariffs, inflation, and a government shutdown all could pose significant risks to the economy, but consumers remain resilient. Second quarter GDP grew at a 3.8% annualized rate. The third quarter looks like it will be in the 2.0% – 3.0% range. Although the fourth quarter is typically strong due to seasonal spending, we think it is likely to be a little weaker in 2025. This is in part due to the government shutdown and due to consumer fatigue with higher prices.
The tax bill that was passed on July 4, 2025 will have an impact for a lot of households in 2026. Almost all of the soon to expire tax cuts from 2017 have been extended. In addition, there are new tax breaks for seniors, tip workers, overtime workers, and auto loans. It is likely that millions of households will receive higher refunds when they file their taxes in early 2026 for 2025. This windfall should cause additional consumer spending in the first 6 months of the year. While we could see an economic slowdown in the final quarter this year, we think we could see a nice pickup in the first half of 2026.
The Federal Reserve seems to be very content with rates at these levels. Inflation is hovering around 2.8% annually, which is close to the Fed’s target of 2.0%. The market still expects two more rate cuts in 2025 and 2-3 cuts in 2026. Economic conditions could change this forecast, but as of today this is the expectation.
Due to the government shutdown, a lot of the recent economic data is not available. Therefore, we will focus on the most recent releases, even if they are a month or two old. The Leading Economic Index decreased by 0.5% in August to 98.4 following a 0.1% increase in July. Industrial Production increased 0.1% in August. The Capacity Utilization Rate (which measures how much slack is in the economy) was unchanged at 77.4%.
Non-farm payrolls rose by 22,000 in August and the unemployment rate remained at 4.3%. Weekly unemployment claims were 218,000 for the week ending September 20, 2025. The 4-week moving average is at 237,500. There are 7.2 million job openings in the U.S. It is important to remember that the unemployment rate is a lagging indicator. Although a weaker economy typically triggers a higher unemployment rate, the massive drop in immigration may keep the labor force thin causing the rate to hold steady.
Manufacturing registered 49.1% on the ISM PMI Index in September. This indicator remains in contraction territory. The New Orders Index came in at 48.9% which was a drop of 2.5% from August. The ISM Services Index was at 50.0% in September, which was up 2% lower than the prior month. The Business Activity Index came in at 49.9% which was a 5.1% drop from August. New Orders for the service sector came in at 50.4%. Anything above 50% is still considered expansion territory.
The JPM Global Manufacturing PMI was at 52.3 in September. The Euro area is at 51.2 while Emerging Economies are growing at 52.8 led by India and China.
EQUITY AND BOND MARKETS
Domestic stocks pushed higher in the third quarter as investors anticipate earnings growth from the implementation of Artificial Intelligence. The S&P 500 is trading at historically high valuations. The forward P/E ratio is around 23 times earnings. The 25-year average is around 17 times earnings. The top ten stocks have been driving the multiples higher with a weighting of 40% of the index and P/E ratio of nearly 30 times earnings.
Capital spending by the major players (Alphabet, AWS, Meta, MSFT, and Oracle) has jumped dramatically since 2023 and the launch of ChatGPT. This growth is expected to continue through 2027 as the infrastructure for AI is being implemented. Because of this, we have seen a massive expansion in industrial production for high tech industries, while other industries have remained flat.
The bond market has produced solid returns for investors in 2025. The Barclays Aggregate Bond index is up 6% in the first nine months of the year. Global bonds are up even more on the year. While cash is an acceptable short-term place holder, over the long-term bonds typically outperform cash and is a better investment.
One of the major themes so far this year has been the performance of alternative asset classes. Commodities such as gold and silver have been on an impressive run. Gold is currently up more than 50%. In addition, Bitcoin is up more than 49% over the last 6 months. Having a small allocation to non-correlated asset classes can offer enhanced returns and downside protection. Just another reason to make sure your portfolio is diversified.
PORTFOLIO MANAGEMENT
The Investment Committee continues to monitor the economy, the market, and the portfolio allocations. While we are a little concerned with the valuations in the domestic large cap growth space, other areas still look reasonable. Domestic value stocks are trading near long-term averages. International stocks have had a great run in 2025, but we think their outperformance can continue over the next five years.
Although the labor market and housing market are showing some weakness, we think there are enough positives to keep this economy out of a recession over the next 6-9 months. Having said that, the market can correct at any time for really any reason. It is normal to have multiple 5% corrections per year, and we have had around 6 months now without significantly volatility. If we do see an increase in volatility, we will likely ignore the short-term correction and focus on what we think will be a strong start to 2026. Our international exposure and focus on asset allocation should allow us to get past any short-term pullbacks.
We do expect volatility to continue over the next six months. Maintaining an appropriate allocation and diversification will be critical to long-term performance. While nobody can predict what can happen in the short-term, we believe that long-term investors will be rewarded with good returns if they can just keep a long-term focus and ignore any of the short-term volatility.
FINANCIAL PLANNING
The SECURE 2.0 Act was passed in 2022, but one of its provisions will be introduced for the first time in 2026. Employees over age 50 who contribute to an employer-sponsored retirement plan and who have income above $145,000 must change their catch-up contributions to Roth.
Let’s back up and explain the foundation of this change.
Employer-sponsored retirement plans are also called defined contribution plans. The most common types are 401(k)s and 403(b)s. 457s are also included; these are typically found with government jobs. This new rule does not apply to SIMPLE IRAs or SEP IRAs, even though those are set-up with employers.
401(k)s, 403(b)s, and 457s have a maximum that can be contributed annually. The maximum is $23,500 in 2025. Employees over age 50 can also make what is called a catch-up contribution. The base catch-up contribution is $7,500. Employees age 60-63 can contribute $11,250 instead of $7,500.
All employees regardless of age or income level had been able choose between Pre-tax or Roth dollars when making contributions to their 401(k), 403(b), or 457. Pre-tax means you receive a tax deduction in the year you make the contribution, but funds withdrawn in retirement are taxed as ordinary income. Conversely, Roth contributions do not receive a tax break in the year of contribution, but funds are withdrawn tax-free in retirement.
Starting in 2026, if an employee over age 50 has earned income above $145,000 in the previous calendar year, they will be forced to contribute their catch-up contribution ($7,500 or $11,250) as a Roth contribution. Earned income is income subject to FICA taxes, which is most commonly income reported on a W2.
Roth contributions have become much more popular in recent years. Individuals are choosing to pay taxes now, thinking they will either be in a lower tax bracket in retirement or tax rates in general will increase in the future. Roth contributions are also popular with the government as those tax dollars come in now as opposed to in future years.
To summarize, if you are under age 50 there are no changes. If you are over age 50, maximizing your 401(k), and will earn more than $145,000 in 2025, your catch-up contributions must be switched to Roth.
COMPANY NEWS
There was something in the water this year at Galecki as we had three team members bring new lives into their families!
