How Your Financial Advisor Is Getting Paid

unsplash-coffee-shopWhen it comes to hiring a financial advisor it pays to do your research. It is important to understand exactly how an advisor is compensated so that you can make an informed decision when paying for financial advice. One note to keep in mind as you perform your due diligence, don’t get so caught up in saving on advisor fees that you end up with worthless advice.


Commission Based

Advisors paid by commission receive compensation from buying or selling financial products such as mutual funds and ETFs. Their compensation is derived from executing buy & sell transactions in their clients’ portfolios.

Commission Based Advisors generally receive 1%-6% of the amount invested or sold at the time of the transaction.

Although this is not the case universally, advisors that charge a commission tend to focus almost exclusively on managing their clients’ investments. This investment-based focus often means they don’t consider other important areas such as financial, tax, estate, or retirement planning.

Fee Only

A Fee-only advisor receives a flat annual fee directly from the client versus being paid a commission from financial products they sell or a specific percentage of investments they manage. They do not receive compensation from a brokerage firm, a mutual fund company, an insurance company, or any source other than the client.

The annual fee will cover a wide range of services, some that may not apply to each client.

Fee Based

Fee Based advisors are paid a specific percentage of the investments they manage in addition to receiving a commission on products such as insurance and annuities.

The average fee is can range from .5% – 2% of the assets being managed each year. The more assets you have, generally the lower the fee will be. Advisors who are paid with fees that are based on assets under management have an incentive to grow their client’s portfolio size. As the portfolio grows so does the advisors income.

Fee-based advisors usually offer a holistic range of services that can include financial advice, retirement projections, saving for college, strategies to save taxes, estate planning and insurance solutions to protect against unforeseen events.

The client of a Fee Based advisor can negotiate the fee at account opening and pay only for services they choose after discussing the options available and reviewing their needs with the advisor.


Retainer Fee

Fee Only and Fee Based advisors often provide a retainer fee option. Retainer fees typically cover unlimited annual access to the advisor for financial advice.

Retainer-based pricing is best for:

  • People who need specific advice about one or a few financial topics.
  • Do-it-yourselfers who just want a professional’s opinion.
  • People who want to do as much as possible to save money but want expert analysis and direction.
  • Young professionals who are beginning to build their investment portfolios and have minimal amounts to manage

Hourly fee

Fee Only and Fee Based advisors may allow you to pay just for the time they work on your case or spend with you. This option is similar to the Retainer Fee Based Model but may be more cost effective in some situations.

Flat fee

Fee Only and Fee Based financial advisors will offer flat fees for a specific financial service such as a comprehensive Financial Plan.


Always ask a financial advisor for a clear explanation of how they will be compensated before you hire them. Look for a straight-forward answer and steer clear of someone who tries to avoid the question or implies that services are free. A reputable advisor will never hesitate to explain their compensation if they have your best interest in mind.

At Kuderer Financial we take pride in working with clients who want to be educated on their financial options. Setup a free consultative meeting to learn about our services and fee structures.