I have experience with finance and investing. I was a corporate finance manager at an investment bank in the local area. I also worked for one of the largest hedge funds locally in Minnesota and was close to taking the Edward Jones career path. I was lucky enough to be able to work as a consultant on a fee-only basis for an unassuming private wealth management company. This was a new concept for me since I had previously thought of Edwards Jones and other brokers/dealers (explained further) as the sole way to plan my finances. I began to realize the possibilities and chose to create my financial advisory firm that was fee-only. This article will discuss how financial advisors are paid and why it's crucial to your financial success when it comes to retirement and investing.

Traditional Financial Advisors

Let's start with the traditional financial planners. Commissions are the main method of payment they receive. When they offer products to mutual funds or insurance companies a commission-based advisor gets paid. Customers do not pay charges for advisors. This is the reason they often offer their services for no cost. This is a lie. While you don't pay your advisor directly, you do pay the companies that the advisor is a representative. These fees comprise sales charges (loads) as well as commissions and ongoing management costs. Additionally, there are bonuses like paid travel. This means that advisors are not independent anymore. Third parties are now paying the advisor. The "broker/dealers" are advisors who earn commissions. Brokers/dealers are financial salespeople. They aim to market products, which in turn, will earn them commissions. Do you see the issue with this arrangement? The issue is not that the advisor is getting paid. The issue is that it creates a conflict of interest between the advisor and the customer. Commissions can be used to market products that offer the highest payout to advisors regardless of whether it is the most beneficial option for the customer. There are many unnecessary products, such as loaded mutual funds (A-B, C-share classes) and whole life policies, as well as permanent/whole life and annuities. These are all very expensive.

Fee-Only Financial Advisors

My experience in the field has taught me there is an easier way to provide financial advice. Fee-only is the way to go. Fee-only advisors charge their clients for their services and the ongoing administration of their portfolios click. The fees they charge are usually a percentage of the assets that they handle on behalf of their clients. They are completely transparent in contrast to the broker/dealer's fees, which are usually concealed or not disclosed in full. Fee-only advisors don't receive any financial benefits from other sources other than the fee they are charged. They do not receive any compensation to promote a particular product. They can advise you on the most suitable investment for your needs. This means that your investments are more affordable and adapted to your requirements. To attract clients they depend on their education, more so than any selling techniques. This structure of compensation is in line with your advisor's goals, which are to help you build wealth.