LESSON
How financial advisors get paid
Knowing how someone is paid tells you what to ask them.
"Financial advisor" isn't one job. The same title can describe a salesperson, a fiduciary planner, or an educator, and how each one is paid shapes the advice you get. Here's how the four most common models compare.
Side by side
| Commission-based | Fee-based | Fee-only | Financial wellness consultant | |
|---|---|---|---|---|
| How they're paid | Per product sold | Advisory fees plus some commissions | Only by the client: flat, hourly, or a % of assets | Salary, usually paid by an employer or firm |
| Who pays | Built into the product | The client and the product | The client, directly | Often free to the employee as a workplace benefit |
| What they do | Recommend and sell investments and insurance | Ongoing advice plus products | Planning and investment management | Education: budgeting, debt, benefits, retirement plan choices |
| Standard of care | Best interest (Reg BI) when recommending | Fiduciary on advice; best interest on sales | Fiduciary at all times | Varies by firm; typically no product sales |
| Conflict to watch | Paid more when they sell more | Wearing two hats at once | Fewest conflicts; fees can add up | Few conflicts, but a narrower scope |
| Good fit for | Someone who needs a specific product | Someone who wants advice and products in one place | Someone who wants unbiased, ongoing advice | Employees building money basics and using their benefits |
Swipe sideways to see every column on a phone.
The one that trips people up
Fee-based and fee-only are not the same. A fee-based advisor charges advisory fees but can still earn commissions on products. A fee-only advisor is paid only by the client and never earns commissions. The names sound alike, so it's worth asking directly.
Three questions to ask any advisor
- How are you paid, and does that change based on what I buy?
- Are you a fiduciary for everything you recommend to me, all the time?
- Where can I verify your registration? (Look them up for free on FINRA BrokerCheck.)
General education only, not personal financial, tax, or legal advice. Compensation and standards vary by firm and by individual arrangement.
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