A:

The ways in which financial advisors can claim a piece of the pie may leave your head spinning. Financial advisors can charge many different kinds of fees, and understanding these fees can make the decision of choosing the right advisor for you much easier.

Commissions

One of the hats financial advisors wear is that of a salesperson, so one of the most common ways they earn money is through commissions from selling financial services. Of course, some products earn them higher commissions than others.

Fee-Only and Fee-Based Advisors

Fee-only advisors are not just looking to sell products, but they have a fiduciary duty to their clients to give advice based on their clients' best interests. When other people are making decisions regarding your wealth, you need to be assured that those people are on your side. Fee-based advisors, on the other hand, can also receive incentives from their brokerages or other companies pushing their products.

Common Fee Structures

Nothing motivates better than the almighty dollar, especially when it comes to financial planning. A common fee structure pays advisors more when your portfolio performs better. Flat fees are commonly charged for performing a one-time project, such as organizing a retirement plan. Some advisors provide financial advice for an hourly fee or make themselves available at any time for a retainer fee, charged periodically.

Most advisors make their living from a combination of fees and commissions. While it can be awkward, it is important to be upfront with potential financial advisors. Ask them exactly how they make their money and what they plan to do to help make more for you.

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