How Do Financial Advisors Get Paid? Understanding What’s Behind the Fee
When choosing a financial advisor, it’s important to understand how they get paid because it can have a direct impact on the advice you receive. Fee structures, business affiliations, and even industry mergers can all shape an advisor’s recommendations. Here's what you should know.
Business Structures: Who Your Advisor Works For Matters
Financial advisors can work in a few different settings:
Independent Advisors often own their own firms or work with small, boutique practices. They typically keep a larger percentage of the fees they charge clients, often 80–90%, but also take on more overhead and compliance responsibilities themselves.
Advisors at Larger Firms (like wirehouses or broker-dealers) might receive a smaller cut of client fees, sometimes just 30–50%, because the firm provides infrastructure, marketing, and support. In exchange, the advisor may face pressure to follow firm-driven strategies or sales goals.
These relationships influence how an advisor builds their business and, potentially, the kind of advice they offer.
Commissions: Not All Products Pay the Same
Beyond fees, many advisors earn commissions, specially when selling financial products like insurance or annuities.
Insurance Products such as annuities, whole life insurance, or long-term care policies often come with sizable commissions. Advisors can receive anywhere from 2% to 10% (or more) of the amount you invest, depending on the product.
Why This Matters: While some of these products may be appropriate for your situation, they also create incentives that could bias the advice. Some advisors may lean toward products that pay higher commissions, even if they're not the best fit for the client.
The Push Behind the Scenes: Product Quotas and Sales Goals
At larger firms, advisors are sometimes encouraged, explicitly or implicitly, to promote certain products. These companies may:
Offer higher payouts for selling “preferred” solutions.
Provide internal bonuses for reaching sales targets.
Incentivize product bundling that’s more profitable for the firm than for the client.
This doesn’t mean all advisors at large firms are acting in bad faith, but it does mean you should ask questions about how they’re compensated and how that might affect their recommendations.
The M&A Wave: Private Equity and the Changing Face of Advice
The financial advisory world is undergoing a major shift: mergers and acquisitions are rapidly consolidating the industry. Many independent firms are being acquired by larger players, often backed by private equity (PE) firms.
PE-backed firms often focus on scaling the business quickly, which can introduce cost-cutting, sales targets, or a shift in advisor incentives.
As firms grow or change ownership, the personalized service you once received might evolve or disappear.
Understanding the business model behind your advisor’s firm is increasingly important in today’s changing landscape.
How Financial Fit Can Help
At Financial Fit, we work directly with local advisors across a wide range of business models. We take the time to understand how each advisor is compensated, how their firm operates, and whether they’re a good match for your needs, not just financially, but also personally.
We help you navigate:
Fee-only vs. commission-based models
The impact of firm ownership and structure on client experience
Which advisors are positioned to act in your best interest
Choosing a financial advisor is one of the most important decisions you can make. We help you make it confidently, with full transparency and a clear understanding of what you’re getting.
Looking for an advisor who puts your interests first?
Let’s start the search together.