Advisor compensation is critical because it impacts the achievement of your financial goals. View our Infographic on how financial advisor compensation impacts you.
Top 3 Rip-Offs
Advisor compensation creates three potential rip-offs:
- Advisors are paid thousands of dollars of commission for very little work
- Advisors sell the financial products that pay the highest commissions
- Advisors say their advice is free* because they are paid by third parties
* There are no free lunches. Third parties (mutual funds, broker/dealers) charge you higher fees and penalties for early withdrawal to recover the commissions they pay advisors.
Type of Advisor
Compensation determines the type of advisor who controls or influences the investment of your assets.
- Real advisors are compensated with fees for their knowledge, advice, services
- Salesmen are compensated with commissions for product sales
Do you want a salesman advising you on the investment of your assets? How about the assets you depend on for a secure, comfortable retirement?
Who does your advisor work for if he is paid commissions by third parties? Not you. Advisors work for the companies that pay them. You lose control when third parties pay your advisor.
Advisor compensation should be based on meeting the expectations he creates in his sales pitch. You should be able to stop his compensation at any time if he fails to meet your expectations. The only compensation you can stop is the payment of a future fee.
Did your advisor voluntarily disclose his method, amount, and sources of compensation. If this information was not disclosed, you should you be very concerned about other information that was not fuly disclosed. How do you trust an advisor who withholds information that benefits him and creates hidden expense for you?
What did you get for the compensation that was paid to your advisor? Quality advice? Professional services? Performance for reasonable risk and expense?
- Advisors who are paid fees have to earn their compensation or it stops
- Advisors are paid commissions at the time of the sale; they are not impacted by your results
You should pay a fee for financial advice and services for the same reason you pay fees to other types of professionals (CPAs, attorneys). You pay for their knowledge, advice, services, and results - not their sales skills.