Fee-Based Investment

DEFINITION of 'Fee-Based Investment'

An investment account in which the advisor's compensation is based on a set percentage of the client's assets instead of on commissions. Contrast this to commission-based investment, in which the advisor makes money based on the amount of trades made or the amount of assets sold to the client.

 

BREAKING DOWN 'Fee-Based Investment'

The benefit of this type of account is that the advisor's interests are considered to be more in line with those of the investor. For example, if a client has an account worth $500,000 and the advisor's fee is 2% of the assets, the advisor is initially set to receive $10,000. But if the advisor were able to increase the value of the account to $600,000, he or she would then receive $12,000 - an increase of $2,000. On the other hand, if the account value falls, the advisor gets a lower commission payout.

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