How Do Financial Advisors Get Paid?

Financial advisors are compensated through several different models, and understanding how your advisor is paid is an important part of any advisory relationship. The three main approaches are commission-based, fee-based, and fee-only. Commission-based advisors earn income through payments made by product providers when a client purchases a financial product such as a pension, investment fund, or insurance policy. These commissions can be paid upfront, ongoing, or both. While this model has traditionally been common in Ireland and the UK, regulators have moved to increase transparency around commission payments to ensure clients understand the full cost of advice. Fee-based advisors charge clients directly for their services, either through a fixed fee, an hourly rate, or a percentage of assets under management, but may also receive commissions from product providers in some cases. Fee-only advisors charge clients exclusively through direct fees, with no commission income from product providers. This model is seen as having the fewest conflicts of interest and is increasingly popular with clients who want complete transparency. Some advisors use a retainer model where clients pay a monthly or annual fee for ongoing access to advice and services. The percentage of assets under management model, common in investment management, sees advisors charge a percentage, typically between 0.5 and 1.5 percent annually, of the total portfolio they manage. Regardless of the model used, clients are entitled to full transparency about how their advisor is paid before engaging any services. Asking about fees and charges upfront is always a sensible step before committing to an advisory relationship.