In the financial services industry, the topic of compensation can be a complex and confusing. At Investia Financial Services we take out the guesswork and always provide 100% transparency on this subject.

We can be compensated in 3 ways:

A fee-only financial planner is paid directly by clients for their services, be it a flat fee, hourly rate, or a percentage of assets under management. The latter is typically around 1% of a client’s portfolio’s value each year for full-service planning, investment management, and advisory services. The fee-only pay structure means the advisor does not receive commissions or other payments from the providers of financial products they recommend to clients.

Fee-only financial advisors act as a “fiduciary,” a term you may hear thrown around; it means they are obligated to put their clients’ interests first. Ask if your financial planner is an investment advisor representative (IAR), registered investment advisor (RIA), or a certified financial planner — these 3 types are all fiduciaries. This is an important consideration when choosing an advisor. (Account minimums may apply)

Paid by clients but also via other sources, such as commissions from financial products that clients purchase. Brokers and dealers (or their registered representatives) are simply required to sell products that are "suitable" for their clients. A fee-based financial planner gets paid by the client but also via other sources, such as commissions from financial products that clients purchase. This can set up a conflict of interest, as the advisor charges you for advice and recommending investment products from which the advisor may be compensated.

Ask if your financial planner is a broker or a dealer, also known as a registered representative. This level of planner is generally held to a lower legal standard, which simply requires them to sell products that are “suitable” for their clients.

A commission is a fee charged by a broker to execute transactions on behalf of the client. When you place a trade order to buy or sell stocks, bonds, exchange-traded funds, options, or other securities in a brokerage account, the commission is the fee the brokerage charges for its role in completing the process.  Commission is not a “dirty word” like many may think. In certain instances, paying a commission to purchase or sell an investment may be a cost-effective way of doing business. Think insurance products like annuities and life insurance that are held for many years. Other investments meant to held for a longer term such as municipal bonds, corporate bonds, treasury bonds held directly by you in a brokerage account may be a fit for a commission-based compensation structure. 

In conclusion, you and your financial advisor will determine which method works best for you.