Financial professionals, like financial advisors and financial planners play a critical role in helping you manage your investments and work toward your financial goals, and in return for their expertise and guidance, they will charge a fee. Sometimes this is a flat fee, some work on commission, and some may even do both. Whether you’re already working with a financial professional, like Trust Point, or are still considering your options, it’s important to make sure you understand the fee structures so that you can be sure that your money, and your financial professional, are working for your best interest.
Commission-based financial advisors
Financial advisors working on commission tend to be brokers compensated based on product sales. While they receive payment when you make an investment on their recommendation, typically their commissions are not drawn from your investment. They’re usually paid out by the investment product sponsor. In most cases, the advisor will receive an initial disbursement when the investment contract is signed and an additional annuity for every year that contract remains active. Some financial products — life insurance, for example — are only sold on commission.
As a result, commission-based advisors are effective representatives for certain products. They are held to a suitability standard, meaning product recommendations must be suitable to a client’s needs but may be more expensive than other options. Brokers are incentivized to offer more expensive options to increase their commission. As a result, the commission introduces the possibility of a conflict of interest in the advice these advisors provide.
Fee-based and fee-only financial advisors
Some financial professionals will charge a set fee for their services. These fees may take the form of an hourly rate, a project fee, or a percentage of assets under management they handle on your behalf.
Additionally, some advisors may operate strictly on a single fee structure, while others may combine them. For instance, your advisor may begin working with a flat fee and then continue working on a percentage of the assets they manage.
Fee-based advisors can earn revenue from both client fess and from commissions. they can charge you fees to manage your money as well as earning commissions for the investments they place in your portfolio.
Fee-only advisors only receive compensation from fees they charge you for managing your money. They do not get paid commissions.
Trust Point follows a fee-only structure. Trust Point is an independent trust company which enables us to put our clients’ needs first and allows us to avoid any conflicts of interest. We do not collect commissions from or share revenue with any investment that we utilize or recommend for our clients. Instead, we use a tiered fee structure that’s based on your portfolio’s size. Fees are 100% transparent and disclosed.
In most cases, fee-based and fee-only financial advisors are fiduciaries, which means they are legally required to act in their client’s interest, building plans and choosing products that are ideally suited to your needs. They must recommend products and services to you that best meet your requirements rather than those that might provide them a commission.
In some cases, fiduciaries may be dual-registered, meaning they are registered as both fiduciaries and brokers. This means they can act as fiduciaries when creating your financial plan and also draw a commission when putting the plan into action. In such cases, the advisor may offer clients a roster of “preferred” financial products within their role as fiduciary and collect commissions if and when clients invest in them. That said, if there are cheaper options that offer the same benefits as a fiduciary, an advisor must present them as an option.
Ask about expected fees
If you’d like to understand our fee structure at Trust Point, let’s have an open conversation so you can better understand the services we offer and how we charge for them. Fiduciary duty has always been at the core of what Trust Point does every day. It’s important that you feel confident and informed about our working relationship, and we’re happy to provide you with any information you need to make the best decisions for your financial future.
With a longstanding history of providing exceptional fiduciary services to clients, you can trust our experienced professionals to help you establish plans to achieve your goals. Contact us if you have any questions.
Financial Consumer Agency of Canada. “Choosing a financial advisor.” Government of Canada.
Lazaroff, Peter. “What is a Fiduciary? Dual Registration Can Make It Harder to Tell.” Plancorp. https://www.plancorp.com/blog/is-your-advisor-a-fiduciary. Accessed 9 Feb 2023.
Pinkerton, Julie. “What to Know About Financial Advisor Fees and Costs.” U.S. News & World Report. https://money.usnews.com/financial-advisors/articles/financial-advisor-fees-and-costs. Accessed 9 Feb 2023.
Tarver, Jordan. “How Much Does a Financial Advisor Cost?” Forbes Advisor. https://www.forbes.com/advisor/investing/financial-advisor/financial-advisor-fees-and-costs/. Accessed 9 Feb 2023.
Wohler, Roger. “What You Need to Know About Fee-Only Financial Advisors.” Investopedia. https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp. Accessed 9 Feb 2023.