How Financial Advisors Get Compensated

PRIMORIS Wealth Advisors |

Understanding the world of financial services can be daunting, especially when it comes to understanding how professionals are compensated for their expertise. Two common methods used are commission-based models by brokers or financial consultants and fee-only models by investment advisors. Below are some key differences:

Commission-Based Model

  • Commissions are fees charged for each transaction, typically a percentage of the total investment or a fixed dollar amount.
  • Brokers earn commissions by executing trades on behalf of their clients.
  • Brokers may receive higher commissions for selling specific financial products, which can create potential conflicts of interest.
  • Clients may be unaware of the total cost of transactions due to hidden fees or mark-ups on products.
  • Clients may incur higher costs due to frequent trading and ongoing transaction fees.
  • Brokers' compensation may not be directly tied to clients' investment performance, potentially creating a misalignment of interests.

Fee-Only Model

  • Investment advisors charge fees based on a percentage of the assets they manage or a flat fee.
  • Investment advisors act as fiduciaries, legally obligated to put clients' best interests first, avoiding conflicts of interest and hidden fees.
  • Fee-Only advisors do NOT have incentives to recommend specific financial products for higher commissions. Their goal is to select the best investments aligned with clients' financial objectives.
  • Fee-Only advisors clearly communicate their fees upfront, avoiding hidden charges and ensuring clients understand the total cost of their investment services.
  • Investment advisors work diligently to minimize costs and optimize portfolio performance, striving to maximize clients' financial potential.
  • Investment advisors' earnings depend on the success of clients' portfolios, incentivizing a focus on long-term growth and prudent investment decisions.

Choosing between commission-based brokers and fee-only investment advisors can significantly impact your financial success. At Primoris Wealth Advisors, we take pride in our fee-only model, where your best interests are our top priority.

 

The content provided in this blog is for informational purposes only and does not constitute financial, tax, legal, or investment advice. All opinions expressed are those of Primoris Wealth Advisors and are subject to change without notice. Investments involve risk and may result in the loss of principal. Readers should consult with their financial, tax, or legal advisors before making any investment decisions. Past performance is not indicative of future results.