It's important to understand the different ways in which financial advisors can get compensated and to feel comfortable with the method yours uses.
Financial professionals can be compensated in the following ways:
- Planning fee
- A combination of planning fee and commissions
- Commissions only
- Asset-based fee
Fees usually are set by the advisor while commissions are fixed by the companies offering financial products. Advisors can charge a flat fee, hourly rate or a retainer. Some advisors apply annual service charges or charge a percentage of the assets managed for you.
Commissions on financial products can include an up-front percentage of the amount invested, a back-end sales charge or an ongoing service fee.
Those professionals working for banks, credit unions and other organizations with financial planning services usually are paid a salary plus commission.
Your financial situation and planning needs will determine which compensation structure suits you best.
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