Friday , 24 November 2017


What You Need to Know About Financial Advisor/Planner Fees

Understanding how financial advisors get paid and what your advisor fees are will help you make smarter decisions about your money. Here are a few of the different ways financial advisors get paid and what you need to know about advisor fees. Words: 538

The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by Bryan Borzykowski (canadianliving.com)

While financial advisors are there to help you make smart decisions with your money, they also want a chunk of it for themselves as well….How they receive their cut, though, can vary.

In the past, it was often hard to pin down just what financial advisors were making off their clients and how advisor fees were calculated but public pressure has made the fee collecting process more transparent. [Nevertheless,] it is still your responsibility to ask exactly how your advisor expects to get compensated.

Here are a few of the different ways financial advisors get paid and what you need to know about advisor fees.

1. Commission
The most common form of compensation is through commission fees. Financial advisors take a percentage of your assets. Depending on who you’re investing with and what the company offers, you could end up paying between 1% and 5% on commission fees.

There are two main types of commission fees for mutual fund advisers: Front-end load and back-end load.

  1. Front-end load: This is the term for the upfront fee that gets deducted from your investment. If the advisor charges 3 per cent, they’ll take that money first and invest the rest.
  2. Back-end load: Mutual fund companies will often pay advisors themselves for getting clients to buy their product. There’s no charge to the client directly, unless you remove your money before a prescribed date. Usually, you’ll get charged a percentage of the withdrawal within six years of investing. The charge is to discourage investors from pulling out their money — if you do, you’re essentially paying back part of the commission.

This type of compensation has courted some controversy over the years. Some people think, that because the mutual fund company is paying the advisor, it affects the planner’s impartiality.

2. Fee for service
Many financial planners are adopting a fee for service model. This means that a client gets charged a set price that depends on what the advisor does for them. This model allows the advisor to do more than just invest.

They may charge you $2,000 to come up with a comprehensive financial plan and $1000 for an estate plan.

Typically, when it comes to investing, commissions still apply, though some may charge a standard fee depending on how many assets you’re investing.

3. Salary
Some bank advisors are paid a salary, just like most employees. There’s likely a bonus attached — often for bringing in new business or investing a certain amount of assets — but not in every case.

Conclusion

There are pros and cons to all of the above advisor fee structures, so figure out which one you like best and find an advisor that matches up.

More importantly, though, be sure:

  1. to ask your advisor how they’re compensated and
  2. the advisor fees are clearly explained and obvious in your…statement.

That will make it easier to see how much money you’re really making.

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