Understanding how an advisor charges for their services is imperative in finding the right fit for your personal situation. Generally, most advisors either are compensated through upfront commissions for products they sell or on an ongoing basis through a percentage of investments that they manage on your behalf. Neither arrangement is necessarily better or worse. It is usually a good idea to discuss how an advisor gets paid, and why they chose that method.
Charging a commission for certain financial transactions – example: invest $100,000 into a security with 5% commission – $95,000 is invested.
Typically works well for someone that need immediate advice on selecting investments but doesn’t have an immediate long-term planning need.
Charging a fee as a percentage of your assets managed – example $100,000 in management charged 1% annual fee for $1000/year.
Typically works well for a long-term planning relationship where ongoing advice will be needed, and the investor has a preference of flexibility in making changes without incurring additional commissions.
Charging a monthly “subscription” charge for services – example $200/month for advice and management.
Typically works well for a long-term planning relationship where an investor doesn’t have enough assets to pay the professional on a fee basis.