When choosing a financial advisor, it’s important to understand how they get paid. There are different options:
- Flat fees: Some advisors charge a flat fee on an hourly basis or for specific services like creating a financial plan. In general, coaches and some financial planners more likely to charge these types of fees.
- Assets under management: Other financial advisors charge a fee based on how much of your money they’re managing. This is common with some RIAs, wealth managers and robo advisors. You pay an annual percentage of the value of your assets.
- Commissions: Some financial advisors are paid on commission. They get a kickback when you buy certain products, such as annuities or life insurance policies. But receiving commissions doesn’t necessarily mean the advice is a poor fit. Still, you do need to be aware of the fact that it could be happening.
- Transaction fees: Some brokers charge separate transaction fees on top of other fees. If they make a trade for you, that fee might be on top of other compensation they receive.
Realize that some advisors might charge different types of fees, depending on the services. So, make sure you’re clear about what’s being charged before you get started.