How Financial Advisors Are Paid
There are a number of different compensation models for financial advisors:
- Commission: Advisors receive a commission on the products they sell
- Salary: Advisors receive a salary, working exclusively for a particular institution like a bank
- Fee-for-service: Advisors are paid a flat fee or an hourly rate for their time
In some companies, advisors are paid through a combination of these methods.
Which compensation model is right for you?
For the consumer, there are benefits and drawbacks to each of these methods.
When choosing an advisor based on a compensation model, consider the following:
- Commissions are only paid when you buy a product; however, this may influence which products the advisor recommends
- Salaried advisors may not be motivated to recommend one product over another, and they may only recommend products from the company that pays them
- Fee-for-service allows the advisor to develop a plan without favouring any specific product or company; however, fees can escalate according to the complexity of the plan, on consideration of the taxation and estate planning requirements
Talk to your financial advisor about how they are paid to help determine if he or she is the right advisor for you.