How does my financial advisor make money?

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A simple guide:

I started my career as a stockbroker (my card said “financial advisor”) at one of the largest Wall Street brokerage firms. I can’t count how many times clients and prospective clients asked me, “How do financial advisors get paid?” It’s a perpetual source of confusion.

At the risk of putting them to sleep, I would at least attempt to explain our 21-page Financial Advisor Compensation Plan. The result? My clients told me they greatly appreciated my attempt to provide transparency in an extremely nontransparent business. My clients trusted me and that was the most important thing to me. However, I also suspected my long-story explanation wasn’t making sense to them and they were always a little skeptical of the firm.

The financial universe has gotten only more complicated since then, so misunderstandings over how brokers get paid persist. Let’s cut through the confusion: There are only three ways that brokers or financial advisors get paid for their advice.

Commissions: When a broker whose working on commission basis recommends a certain fund, annuity or any other investment product, there’s a sales charge that comes right out of your pocket (a sales load, which can run 3-6% of your investment right off the top). Or sometimes the company whose product he or she is recommending pays the broker’s commission as a ‘marketing expense’ for that company. Think of it as a kick-back.

Either way, commissions create a conflict of interest for the advisor. Why? This broker or advisor has a big incentive to recommend the option that pays him/her the most whether or not those investments are really best for you, the client. Incentives are fine but we’re talking about investments, not hamburgers or used cars. Now you can now see why stockbrokers at most of the traditional brokerage firms are criticized for being nothing more than high-paid salespeople.

This is why if you do use a commission-based financial advisor, you’ll want hire one that is legally bound to put your interests first, above their own. This is known as an investment fiduciary.  

Ok so how do I get away from this Wall Street driven sales culture and get a fair deal?

Fee-Only: By far the most touted by the media and talking heads (like me) is the fee-only model. Fee-only registered investment advisors (RIAs) don’t sell products, don’t accept commissions and they operate as fiduciaries.

To hold yourself out as a fee-only advisor, you cannot also sell life insurance, annuities or any other investment for commission. Fee-only advisors work for their clients and ONLY get paid an hourly rate, a fixed annual retainer or a percentage of the investment assets they manage for their clients. The advice they give is independent of the products recommended.

Fee ranges are all over the map, but generally average somewhere between 1-2% of the total value of the investments being managed. Say you have a $500,000 portfolio that you manage with the help of a fee-based (that is, asset-based) adviser charging 1% of your portfolio’s value each year. In that case, you’re paying $5,000 a year for that guidance.

To determine if the service is worth the fee, you need to explore what value you’re receiving in return. If the portfolio is closely mimicking the overall market it may not be worth paying a manager even 1%.

But if this advisor generates stable, reasonable returns regardless of the market gyrations and keeps you from going off the rails whenever there’s market drama, or taking too much risk unknowingly, then a fee of up to 1.5% may be well deserved. If there’s a downside to fee-based management it’s that even when the overall market has a terrible year, your investment advisor still gets paid, so it’s important to hire someone who has expertise in both up and down cycles.

Fee-Based: Fee-based advisors blend the commission-only and fee-only models.  They can sell you an investment and get a commission from that transaction, or they may charge you a fee calculated as a percentage of assets to manage your portfolio, or they may do both.

While the term “fee-based” may sound very similar to “fee-only,” there are key distinctions. The fee-based model can be vulnerable to the same conflicts of interest that the commission structure entails. I know lots of really qualified advisors who are mainly fee-based (the majority of their revenues come from fees), but they can offer you a mutual fund or an investment that normally comes with a commission. For example, an advisor might really believe strongly in a fund family that has a sales commission or ‘load’ built in, but I’ve even seen cases where the advisor will make sure that cost does not come out of your pocket.

Whichever way you compensate your advisor, just make sure you get it down in the form of a simple, clear written statement. I always say, from my days as a broker, the thicker the documentation that explains an advisor’s compensation, the more you’ll pay for that advice.


Pam Krueger is the founder of WealthRamp, co-host of MoneyTrack on PBS and national spokesperson for The Institute for the Fiduciary Standard.


  1. FJ says:

    Thank you for the great information that I was looking for many years. Many people, even my close friends and family members, are paying high fee for poor financial advice. They would have better off if they have invested their hard earned money into a low fee index fund.

    I think fee-only advisors are worth consider instead of other two, or learn about finance 101 and invest in dividend growth stocks as I do.

    Best Regards,

  2. Interesting that you do not mention that investors can do their own stock choosing, buying and selling without involving a third party. With all the research and stock management tools available I am having a hard time understanding what financial advisers can do that I can not do myself. I know they would not spend as much time carefully choosing investments and monitoring them. I think it is that most people think investment advisers are some how have access to some kind of magic that consumers don’t – they don’t. Perhaps they want to have someone to blame for their poor decisions.

    • Pam Krueger says:

      Hi Ian,

      Thanks for making this great point. I couldn’t agree more. The reality is, most people now know they can make and manage their own investments, and there are plenty of free tools that are incredibly useful. A really good, and qualified fiduciary financial advisor will not focus only on investing. He or she will start with the financial planning. This is where the collaboration comes in when you sit down with someone who will take the time to understand your whole financial picture, and then model out cash flow and spending scenarios. This planning should come before any investments. It’s like going to a doctor who instead of taking the time to learn about you, and why you’re there, he goes straight to selling you on prescription drugs. A really good advisor is not going to ‘sell’ you on his magical investing strategies, or his firm’s chosen funds– he will start with the planning process first.

    • jack herrmann says:

      Not everybody has time to invest themselves. That is why FAs were created, they also manage much more then just stocks, they have control over all of your finances and can save you thousands of hours of work.

  3. Richard Cobb says:

    Thank you for sharing. Great content.

  4. Heide says:

    I’ve been thinking about this conundrum for some time. Why is it that investors only have the option of doing it themselves or using an advisor who charges year round fees for periodic advice? Rarely if ever do you see an investment advisor charge you only for the work they do for you. I’m seeking to change this.

    • Pam Krueger says:

      Hi Heide,

      Many advisors care take their clients’ portfolios by making sure they are properly diversified and in balance. Most are monitoring and making sure details are constantly in check. For example to ensure that withdrawals you’re taking from various retirement accounts are in sync with your goals and not overspending. The relationship includes the get-together meetings that only happen a few times a year or less, but there’s a lot to making sure on the back end that you’re in good shape with taxes, estate plans, etc. Reach out if you want any help in figuring out whether you should work with a planner by the hour, retainer or pay an inclusive assets under management fee. As long as the fee is reasonable, transaction costs are kept to a minimum, I have no problem paying someone to manage my portfolio. I also take full advantage of the education a really good advisor will provide. Thanks for your good comments! Cheers, Pam

  5. Elaine says:

    My scotiabank advisor keeps bugging me to rebalance my portfolio . It now suggests a quarterly rebalancing. I have never automatically rebalanced and the returns are fantastic
    Is he just trying to get more commissions on buying/selling changing it up and my gains will be eaten up in transaction trade fees?


    • Pam Krueger says:

      Hi Elaine,

      I’m not a fan of any bank managing my investments because costs there tend to be buried deep within the actual investment products, the investments are very limited to whatever they want to ‘sell’ you, and over the course of time we tend to simply sit back and forget to check in. That’s when you realize, it’s been 15 years and I’ve paid HOW much in fees?? Holy cow. I mean it can add up to tens of thousands easily. Banks and insurance companies are just notorious for underperforming and over charging for what they offer. Email me separately and I can suggest some other very high quality, very cost-efficient ways to accomplish what you need/want. My direct email is I ‘ll see your email and get back to you within a couple of days. 🙂

      Once upon a time, we didn’t have as many choices. There are just so many better options these days.

      Warm regards,

      • peter says:

        One thing that intrigues me is if and how fuduciary agents get some kind of compensation for sales of annuities and individually mamanged funds. The IMF’s appear to add a level of management fees that get charged and a re invisble to the investor (advisor client). For annuities, I ssupect thata slaes commision that appears nowhere is received by the fuduciary agent and that is covered by the fee chaged for early withdrawal. None of the above have been disclosed by my agent. Am I right in my assumptions?

        • Pam Krueger says:

          Hi Peter,

          I often wonder how we wound up creating such a stupid, confusing financial services world. A true “Fiduciary” is not an agent because agents work FOR their companies, not FOR their clients. So anything any broker or agent tells you about fees comes from the mouth of the mothership– aka the insurance company or brokerage firm because that’s how an agent is paid. When you’re working with a real fiduciary advisor, that advisor is legally obligated to put aside any other incentives and work only and directly for you. That means you’re paying the advisor yourself and your advisor must disclose all fees and break them down to explain them, etc. No system will be perfect, but I suggest not wasting your time trying to figure out the puzzling array of tricky hidden sales commissions built into the IMF’s and yes, annuities are NOT an investment. Annuities are just one TOOL you would only touch if you absolutely needed it. For real investment advice, avoid big box insurance companies or so-called, full service brokers. Instead, find an independent registered investment advisor who is a true LEGAL fiduciary. I’ll match you to the right kind of fiduciary advisor on That’s my platform where I introduce consumers to fiduciaries who fit with your preferences. Let me know how you do!! Warm regards, Pam

  6. Melissa W. says:

    I’m newly divorced and have money coming from 3 QDRO’s as well the sale of my home. One of the QDRO is with Fidelity so I thought I would consolidate them all with Fidelity investments. I met with a Fidelity financial advisor today who asked lots of good questions and of course he wants me to place my money with them. As we finished up our meeting he explained there will be a yearly fee of .83% for my total investments. That sounds like a lot of money! I was a stay at home mom for 17 years and my ex husband did all this. I’m so confused … should I put all my assets at Fidelity or hire a fiduciary to help me figure this all out?

    • Pam Krueger says:

      Hi Melissa,

      You’ve been through a lot and believe or not, what you are doing right now is smarter than 95% of people in your situation. You can do both these things, and your gut it guiding you in the right direction. Step 1) get the funds safely tucked away in a totally liquid money market account. Fidelity is just fine, but do not actively ‘invest’ the money anywhere until you have a total, holistic plan. So you do not need anyone working at Fidelity to give you investment advice. Just a simple parking place that will keep this money safe and totally available to you. Interest on this will be minimal, but it’s all about safety first. Do that, then breath out. 🙂 Step 2). Now you can turn your attention to putting a totally holistic plan in place. I would definitely want to suggest a fiduciary advisor who has deep knowledge and experience of financial planning and investment management for your specific situation. I’m heading to California tomorrow afternoon, but I’m available in the morning (EST), or on Tuesday, and anytime after T-Day. Why don’t we try to chat so I can explain a few things, and assure you how correct you are in your approach. You haven’t taken any wrong steps here, so you’re fine. Call me on my cell: 415.378.8240. It won’t take much to get you feeling confident because you’re already doing the right things– don’t worry, you’ve got this, Melissa! I look forward to talking, and meantime, wishing you a relaxing holiday.

  7. Ashton A. says:

    I’m currently 16 years old and have been looking at many different career options. I’m currently in my 2nd of 7 weeks at Dave Ramsey’s Financial Peace University and the Instructor of our course is a Financial Advisor at SunTrust. His job has interested me in finding out more information, but I would like to know out more about how I could help people with Financial Planning to get out of Debt and help with behavioral changes, impulse spending, and investing (Especially Roth IRAs).

    From what I have seen on Google so far, it is mainly Sales, but was wondering how I would be able to grow an independent “Business” with those incentives listed above and putting the customer before me, not just shamelessly selling someone a product I don’t know about.

    If I were to go on my own, I’d like to be a Financial Planner, not as much of a Broker. I’ve looked at the options an Advisor could be paid by, and Fee-Only seems to be the most appealing. Would that differ for being a Planner?

    Lastly, what Degree would I need to be a Financial Planner that is a Fiduciary (works in the customers best interest) and what are some good colleges you would recommend.


    • Pam Krueger says:


      You’re incredible! You’ll be so far ahead of the curve by educating yourself and you have so many options available to you within the financial advisory world. You’ve already picked up on the difference between someone who works as a salesman, or ‘broker.’ Getting familiar with the role of a financial planner, and how that planning process works dynamically over the course of someone’s life. Bothering to become a fiduciary advisor who is registered with the SEC means you’re serious about your expertise.

      You may decide both planning and investment / portfolio management is most appealing to you. I have an idea: aside from you doing your own homework, which clearly you are, how about if I set up a phone call with an excellent advisor who has CFP, CFA and you can interview him/her?

      That way, we can learn more about you, talk about which courses and or degree might be most suitable, and how explain how the CFP course works in the real world?

      Ashton, I’ll be excited to get you on the phone or Skype with a top-notch RIA and who knows??? Maybe we’ll get you an internship when you’re ready!

      Please let me know when we can chat, my cell is below and it will be my pleasure to make a good introduction for you.

      Warm regards,

  8. Katrina says:

    Hi Pam,
    I am looking for a Financial Planner and wondered if you have any suggestions ? I have Fidelity investments through work but am playing catchup post divorce. At 61 in good health and need to make some other investment decisions. Got called by an NY Life contact out of the blue and have paperwork from an investment group my parents use for a 1% fee. I have not felt comfortable to make any decisions and wanted to reach out.

    • Pam Krueger says:

      Hi Katrina,

      NOOOOOOOO NY Life! Why can’t the insurance agents just be insurance agents (salespeople). Let the real advisors (who bother to take the time and care to be fiduciaries) be the advice givers? 🙂

      Yes, I can definitely help you find a truly qualified financial planner. Let’s start by you going to my site, Click the ‘get matched’ and go through the questions. Then, when you’re done and you see the advisors who fit with your priorities, retirement planning, retirement income planning, retirement spending… etc., then let’s talk so I can answer any questions you have.

      This is a 2-min video about how I vet advisors.

      Katrina, here’s my cell: 415.378.8240. Please just know I’m here and we can chat so you feel comfortable.

      Warm regards,


  9. Sue says:

    My husband is retired and is considering Amnex Wealth Management invest his $400000. 401k with TD Ameritrade. Should he be looking at other options?

    • Pam Krueger says:

      Hi Sue,

      I don’t know the firm personally. Thanks for sending my your question— let me take a look at their background records first. That will tell me a lot. Then we can hop on a call together, and I’ll show you exactly what I see, good, bad or ugly. At first glance, they appear to be hybrids, meaning they make their money from fees, but also from commissions from selling products. This isn’t a model I particularly like but let’s look more closely.

      Give me a call tomorrow afternoon. My cell is below. It will be pleasure to chat it through with you.

      P.S. TD is a great place to ‘custodian’ the account. Fees are super low and they’re probably my favorite in that discount broker category. But in the advice dept., there’s nothing there so it’s good you’re being really thoughtful.

      Warm regards,


  10. Margie says:

    Hi Pam,
    I’m in my mid thirties and just started working for the State of WI. The state has a deferred compensation plan which is pre-tax. They work with financial advisors who charge a fee of 0.45%, which is the lowest I’ve seen. When I asked whether she’s fiduciary, she said that the board is fiduciary. I’m not sure what that means. Meanwhile, the man who sold us our life insurance said we should avoid using the deferred comp plan because it doesn’t offer many choices for investments. On other other hand, our current “financial advisor” told us he would help more with budgeting and goals for a fee of $500 per year, and he currently receives approx. .75% upfront from the mutual fund company that he uses to invest with, plus .75% annually as a trailer. My question is, should we use the deferred comp. plan and the advisors for that plan?

    • Pam Krueger says:

      Hi Margie,

      Yes, I can see where it gets confusing. First off, let’s just make life easier by ruling out the insurance agent who’s trying to ‘advise’ you because he’s not an advisor, he’s a salesman.

      Next, now you can focus only on working with a real advisor or planner. The question is who? So starting with the workplace environment. Yes, the plan itself has only X number of investment options. Think: chocolate, vanilla and strawberry in terms of variety. Stocks, bonds and cash-like money market funds. That’s what they mean by limited choices. BUT, those choices are pretty well thought out and selected by an investment committee. The fees are very low. So there’s not much to do there except get familiar with the choices and diversify within those options and for that kind of ‘advice’ or guidance all you need is a relationship with this advisor. So that’s the ‘workplace’ portfolio. What about outside of work? Outside the plan? What’s happening with your other savings and investments if you own other investments from say, IRA accounts or real estate investments? That’s where you may want to engage with a real fiduciary financial planner who will not only look at your workplace plan, but will look at your whole picture. I don’t like the fee and trailer for this advisor who’s offering the $500 PLUS .75% a year??? That’s way out of line in terms of fees. (Unless I’m missing something else he said.) Please know you can call me to have a chat, or if you go to my fiduciary matching site, you’ll fill out the questions and then get matched to a planner I’ve already vetted. I’m here and happy to help so please don’t hesitate to call. Here’s my cell: 415.378.8240.



  11. Vicki says:

    Hi Pam. My seven siblings I inherited some money when my dad passed away a little over a year ago. His money was with Edward Jones. It appeared that Edward Jones had done a good job for my dad. Edward Jones opened a new account for each of us and transferred equal shares into our new accounts. Some of us left it there and others moved it elsewhere. I often hear bad things about Edward Jones and how they conduct transactions that benefits the client but benefits the broker far more. I’m 61 years old and will retire in just a few years. I will need that money to live on, along with my social security. Should I be concerned about Edward Jones or do you believe it’s an adequate place for my inheritance?

    I appreciate your response.


    • Pam Krueger says:

      Hi Vicki,

      I’m sorry you lost your dad. This money is important. I’m not a fan of brokers or insurance agents taking on the role of ‘financial advisor’ because an advisor does so much more than sell investments. Your dad may have had a good relationship with the individual broker (advisor) there. You may not have that connection, and therefore, you’re asking the smartest questions right now.

      Let’s divide the investment advisor world into two distinct groups. There are ‘brokerage firm advisors’ and there are ‘fiduciary financial advisors’. The brokers are salespeople. They get paid to sell you transactions. The bigger the transaction, the more money they make whether or not you do well. That should make you wonder if his investment advice is motivated by how much he’ll make based on what you do. That’s a built-in conflict of interest and there are no brokerage firm advisors allowed to sign a fiduciary oath for that reason. You may never know how much you’re really overpaying them because they bury the fees inside the investment products. 90% of financial advisors work at either a brokerage firm or an insurance company. They represent those interests, not your’s.

      Let’s focus now on the other group– the fiduciary advisors who don’t work at brokerage firms but are independent registered investment advisors. There are only about 50-thousand independent financial advisors so they are much harder to find because they don’t advertise like Merril Lynch or Edward Jones. These advisors are registered with the SEC and by law, they must put your financial best interest first. They do not work for anyone but you and they must be 100% transparent about their fees. The fact that work only and directly for you means you’re on the same side. Registered investment advisors take a different approach from the get-go. They tend to start with a very thorough analysis of where you stand, cash flow, etc., so their investment advice is based on a foundation, not some out of context investment idea. Still, being a fiduciary doesn’t make an advisor competent. The independent financial advisor in the strip mall down the street may not be anywhere near as educated or experienced as another independent registered advisor in a nearby town. How the heck do you vet these advisors?

      There are some simple steps you can to screen an advisor. I’ll give you 3 here:

      1. Go to the SEC’s site where you enter the name of firm or advisor and look to make sure there are no ‘disclosures’ or complaints, you’ll be able to see how much they charge in fees, you’ll see their education, their time in the business, credentials. You’ll get a really good sense of who they really are. The info’s all their on their form ADV.

      2. Then ask if the advisor is fee-only. You want an advisor who gets 95% of his revenue from the fees you pay him directly, not from third-party kickbacks.

      3. Ask the advisor if he or she is willing to sign a fiduciary oath.

      Vicki, I created to match you to the right fiduciary financial advisor. I vet each and every advisor on my platform and I screen out 95% of advisors and there are no brokers or insurance agents on Wealthramp because they can’t be fiduciaries. I’m on a mission to educate people about the fact that advisors play by different rules.

      This money you’ve been fortunate enough to inherit is important and the person you turn to for help needs to be competent and work for you, as your advocate, not for some brokerage firm. I’m totally available to chat, and I’d love to see you go to and get your matches, then we can run through their profiles.

      My cell is: 415.378.8240.

      Warm regards,

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