Broker Check

How Financial Advisors Charge for Advice

Financial advisors can charge for their work in one of three basic ways, or a combination of the three:

  1. Commissions – Advisors can charge a commission, also called a sales charge or sales load. The commission can be up-front, as a percentage of the purchase amount, or on the back-end if you take money out of the account within a certain number of years. Commission based accounts also often pay advisors a trail fee, also called a 12b-1 or service fee, on an ongoing basis. 

  2.  Flat fee or hourly rate – Advisors may charge a flat fee for devising a financial plan or charge an hourly rate for work performed. 

  3. Advisory fee – Advisors can charge an annual fee as a percentage of the assets under management with them. An example would be if you have a $100,000 account and the advisor charges 1%, you pay $1,000 per year (or higher as the account value grows) to the advisor.

In addition to the above charges that come from the advisor, you should understand that many investments have underlying costs as well.

Monica charges in one of two ways. You can either use commission based investments that she recommends, or she will charge an hourly fee. If you have commission based accounts with her, she will not charge you for any additional advice. Though many in the industry have moved to advisory fees, Monica feels that commission based accounts are a better value for her clients over the long term. While the up-front costs are higher, the ongoing expenses are often much lower. This is because Monica follows a buy and hold philosophy. With very little trading, commissions can often be the better value. However, for someone who prefers a more active trading style, advisory fees could be a better choice. The important thing is to know the costs, both from the advisor and the underlying investments, of any investment strategy you choose.