"Is Your Financial Advisor's Pay Secretly Costing You Thousands?" 💸

How Much Are You Paying Your Financial Advisor?

“So, how much were you paying that advisor who put you in those mid-cap stocks?”
“She was charging me 1.85% a year on the money I had invested with her.”
“That’s a lot!”

I hired her because she charged a percentage of the assets she was managing, rather than earning commissions from buying and selling stocks or mutual funds. At the time, that’s what I wanted to try.

How Advisors Earn Their Income

Financial advisors can earn their income in a few different ways:

1. Commission-Based

   • These advisors make money by earning commissions when they buy or sell stocks, mutual funds, or other financial products on your behalf.

2. Asset-Based Fees

   • These advisors charge a percentage of the money in your account that they’re managing—often around 1–2% annually.
   • For example, if you have $100,000 invested, a 2% fee means you’re paying $2,000 per year, no matter if your account grows or declines in value.
   • Sounds familiar? That’s the type of advisor I had. Unfortunately, when my portfolio started losing value, I decided it wasn’t working for me anymore.

3. Fee-Only Advisors

   • These advisors charge a flat fee for their services, like $300 per hour or $3,500 for a comprehensive financial plan.
   • Fee-only advisors are often considered more unbiased because they’re not earning commissions or tied to selling specific products. They focus solely on providing advice.

Why It Matters

Understanding how your advisor gets paid is critical because it can influence their recommendations. For instance:

• A commission-based advisor might push certain products because they earn more from selling them.
• An asset-based advisor might benefit financially whether your investments grow or shrink, so their incentives may not always align with yours.
• A fee-only advisor’s income doesn’t depend on specific products or account balances, allowing them to focus on offering objective guidance.

Knowing the payment structure of your advisor ensures you’re not only getting the advice you need but also understanding their motivations. Take the time to ask how they’re compensated—it’s your money, after all!