Financial Planning

Understanding Financial Advisor Compensation

There are specific fee structures when working with a financial advisor. Knowing ahead of time what it will cost you to sit down with them may be something you want to know.

How Do Financial Advisors Get Paid?

If you're thinking about working with a financial advisor, one of the things you need to consider is the cost. In other words, how does the financial advisor you're considering get paid and what is it going to cost you?

Financial advisors and financial planners have different fee structures that are generally fee-only, fee-based, and commission-based.

A fee-only financial planner could be referred to as a “no commission” advisor. A fee-only planner doesn't accept any fees or compensation based off the products that they sell you. Much like any other professional, fee-only planners are paid only for the advice that they provide to you as their client. This could mean they charge you an hourly fee for services, or calculate a retainer fee. Because a fee-only planner has no direct financial stake in the recommendations they provide to you they may be more encouraged to act solely on what they feel is in your best interest. 

A commission-based broker works a bit differently than a fee-only planner in the fact that they're paid through the sale of certain product such as a life insurance, mutual funds, and annuities. So instead of charging an hourly or flat rate fee for their services, they're compensated by the commissions earned off of specific products and transactions.

A fee-based financial advisor earns an asset-based fee, or in other words, a fee that is a stated percentage of the overall value of the assets that he or she is managing.

The key takeaway here is to always ask an advisor upfront how they will be compensated before you make a commitment to hire them. Discuss the benefits of the services they can provide to you as an individual, and based on your unique financial situation. By understanding the differences, you can make more informed decisions before hiring a professional to manage your financial portfolio.

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.

Financial Advisor

Before you hire a financial advisor, find out how they are compensated for their services. Understanding how financial advisors are paid allows you to make the best decision based on your individual situation. For more information, visit our learning center.

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