How does my advisor get paid?
It's important to know how your advisor gets paid for many reasons. For starters, you may find that you’re overpaying for what you’re getting. Or the opposite could happen. You may find that you’re looking for a specific type of relationship that they aren’t paid to do, and as such, you won’t get that service.
So, how do you figure out how your advisor gets paid? The first thing to note is that advisors get paid three ways: commissions, investment advice and financial planning.
- Commissions: When a commissioned-based advisor sells you a product, they get a commission from that company.
- Investment advice: When an advisor gives you ongoing advice on stocks, bonds, ETFs, and mutual funds to invest in (and you pay an advice fee), they get paid for their ongoing “investment advice.”
- Financial planning: When an advisor has a financial planning relationship agreement with you and gets paid for the whole project, or on an hourly or annual basis (regardless of whether you invest with them), they get paid to be your financial planner.
There's nothing wrong with any of these ways of getting paid, and one isn’t better than the other. But you need to know what your advisor is getting paid for. It could be completely different than what you initially thought.
Here's what you can do to help ensure you’re getting what you’re paying for:
Figure out what you need
Do you need to buy a product, like a term insurance or mutual funds inside your Roth IRA? Then there's nothing wrong with a person receiving a commission for helping you.
Are you looking for someone to recommend which stocks, bonds, ETFs, and mutual funds to buy? You will pay the advisor for their investment advice. This will likely happen via a monthly charge out of your investment accounts.
Do you need guidance on decisions, even the ones that don't involve investments? These often involve pensions, Social Security, retiree health coverage, and estate planning strategies. You'll consult a financial planner and pay them directly.
Provide clear communication
Clearly communicate to your advisor what you need and ask them how they get paid. If what you need doesn't align with how they get paid, look for someone else.
Ever heard the phrase, “What got you here won't get you there”? That can be the case with retirement. And it can be tough to find a financial advisor for you.
The commissioned salesperson who helped get your first Roth IRAs, investments, or annuity might be unprepared to answer questions about filing for Social Security or a pension.
The investment advisor might not be interested in answering questions about retiree health insurance or tax planning.
When you're retiring, make sure you're working with an advisor who has helped others retire successfully.
If you have more questions than your advisor has answers...
If creating a low-stress retirement plan will help you and your spouse see eye-to-eye...
If you need someone to help with the important financial decisions in your life...
Then you need to learn more about our Confident Retirement® approach to retirement planning.
There's no charge to meet by phone or in person to learn how a planning-first retirement advisor will help you:
- Help plan for your retirement income needs
- Review Social Security and pension options
- Determine risk tolerance
- Plan for success and prepare for the risks by regularly reviewing your investment strategies
Click here to schedule a meeting today.
We're here to help you feel more confident about your financial future.
Learn more about us
Read more articles by Fiduciam Financial