How Financial Advisors Get Compensated

PRIMORIS Wealth Advisors |

Grasping 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)

  • 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; your best interests are our top priority.