How Financial Advisors Get Paid – Fees & Commissions Explained
Many people are hesitant to meet with a financial advisor because they worry about the costs involved. Before working with a financial advisor, it is important to talk about the commissions and fees you could be charged. While there are some in the industry that charge an hourly rate or flat fee, the two main compensation and fee structures for many financial advisors and firms are: commission based and fee based.
In a commission based account, you'll pay a fee or commission upon the execution of certain trades. In a fee based account there are no transactional commissions, instead the account is assessed a fee that is usually determined as a percentage based on the amount assets under management in the account.
Commission Based Accounts
Also known as traditional brokerage accounts. This option may be more appropriate for accounts implementing a "buy and hold" strategy where constant investment oversight or high frequency rebalancing across different asset types might not be needed. A traditional brokerage account could also be more suitable for accounts with conservative, cash alternative objectives where money market funds, brokered CD's or ultra short bond funds are likely appropriate as they are conservative in nature and typically offer investors access free of transactional commissions.
It's important to note that while traditional brokerage accounts can offer a wide range of investment options, advisors and brokerage firms are compensated through commissions charged upon the transactions executed in these accounts. It is also important to remain aware of potential conflicts of interest that could result from this type of commission structure. Always ensure that your advisor acts in your best interests and fully discloses any fee or commission associated with your account before an investment decision is made.
Fee Based Accounts
Also known as advisory accounts. This option may be more appropriate for accounts that could benefit from unique investment allocations where rebalancing strategies across different investment vehicles and asset classes will be implemented. Investment vehicles include, but are not limited to mutual funds, exchange traded funds, individual stocks and bonds.
An advisory investment account involves advisors providing guidance and managing investments on a client's behalf for a predetermined fee. Fees are typically determined by the account's total assets and investment objective.
For reference, we've provided our general advisory account fee based on account size:
Account Assets - Account Fee
$0 - $99,999 - 1.09%
$100,000 - $249,999 - 0.99%
$250,000 - $499,999 - 0.89%
$500,000 - $999,999 - 0.79%
$1,000,0000 - $1,999,999 - 0.69%
$2,000,000 - $4,999,999 - 0.49%
$5,000,000 + - 0.39%
In advisory accounts, advisors are held to a fiduciary standard, meaning they are required to act in the client’s best interest. Advisory accounts can offer benefits such as ongoing management, rebalancing, access to lower cost mutual funds and a high level of transparency. This helps differentiate it from traditional brokerage accounts and highlights the focus on providing comprehensive financial advice.
At E.P. Wayne Financial Group, we believe transparency and choice are essential. That’s why we offer both commission-based and fee-based options—so you can select the approach that best fits your needs and preferences.
Beyond investment management, we provide comprehensive financial planning, including retirement, tax, and estate strategies, to help you make informed decisions and avoid unnecessary costs.
Learn more about our process and how we help clients make informed financial decisions.