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. CommissionsAdvisors 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 rateAdvisors may charge a flat fee for devising a financial plan or charge an hourly rate for work performed. 

  3. Advisory feeAdvisors 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 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.

Understand that there is not one best way to charge for advice.  It depends on your individual situation and how much advice is ongoing.  If you are looking for someone to manage your money but have questions and concerns now without too much need for ongoing advice, then commissions are actually the least expensive option long term.  Advisory fee arrangements are generally preferred when there is continual, ongoing advice.  A flat fee or hourly rate may work well for those who enjoy handling their own investments but want a second opinion on a regular basis.