One of a client’s biggest concerns when seeking financial guidance is often one of the most confusing: “How much is this going to cost?” The world of advisor fees can seem complicated, but it doesn’t have to be. The most important thing is that you feel confident and clear about how your advisor is compensated before you ever begin.
This post will break down the common ways advisors are paid and explain my own approach to transparency.
Three Common Fee Models
In the financial industry, you’ll generally find three ways advisors are paid:
- Commission-Based: In this model, an advisor earns a fee, known as a commission, for facilitating a specific transaction. This could be a fee for buying or selling a security (like a stock or bond), which may be paid by the client as a separate transaction cost. It can also refer to compensation paid by a third-party, such as an insurance company, when one of their products is sold.
- Fee-Only: The advisor charges a direct fee for their services, such as a flat fee for creating a financial plan or a percentage of the assets they manage for you (AUM). They do not earn commissions because they do not offer commission based product.
- Fee-Based: This is a hybrid model where an advisor may charge fees for planning and management, and also earn commissions on certain products.
My Approach: 100% Transparency
To ensure clarity and to best serve my clients’ diverse needs, I operate on a “Fee-Based” model. This means my compensation comes from one of three places, depending entirely on the services you need. I will always explain this clearly to you before we begin.
- For Comprehensive Financial Planning: I charge a flat annual fee for the creation and maintenance of your in-depth financial plan. This allows me to provide objective advice across all areas of your financial life. This fee typically ranges from $1,500 to $5,000 per year, based on your specific situation.
- For Ongoing Investment Management: For clients who would like me to manage their investment portfolio on an ongoing basis, I charge a simple 1% annual fee based on the assets I am managing.
- For Insurance Products: If your plan requires an insurance product, I am paid a commission directly by the insurance company. Your only cost is your regular premium, and this does not change whether you use me as your agent or go elsewhere.
The Bottom Line
No matter who you choose to work with, make sure you fully understand the costs before moving forward.