How do financial advisors get paid?
1. Fee-Only Advisors (Client-Paid, No Commissions)
Fee-only advisors are paid directly by their clients. They don’t earn commissions from selling financial products, which reduces potential conflicts of interest.
How they charge:
Flat fees (e.g., $1,000–$5,000 for a financial plan)
Hourly rates (often $150–$400/hour)
Percentage of assets under management (AUM) (commonly ~1% annually)
Why it matters:
Because their income comes only from you, fee-only advisors are generally seen as more objective. Many operate under a fiduciary standard, meaning they’re legally required to act in your best interest.
Best for: People who want transparent pricing and unbiased advice
2. Commission-Based Advisors (Product Sales)
Commission-based advisors earn money by selling financial products like mutual funds, insurance policies, or annuities.
How they charge:
Commissions built into the product cost
Sales loads (front-end or back-end fees)
Ongoing trailing commissions
Why it matters:
This model can create a conflict of interest. An advisor might be incentivized to recommend products that pay higher commissions—even if they’re not the best fit for you.
That doesn’t mean all commission-based advisors are untrustworthy, but it does mean you should ask more questions and understand what you’re being sold.
Best for: People comfortable evaluating product recommendations carefully
3. Fee-Based Advisors (Hybrid Model)
Fee-based advisors combine both approaches: they charge fees for advice and may also earn commissions from products.
How they charge:
AUM or flat fees plus
Commissions on certain investments or insurance products
Why it matters:
This model offers flexibility, but also introduces potential conflicts. Transparency is key—good advisors will clearly explain when and how they’re compensated.
Best for: Clients who want a mix of planning and product access, but are willing to stay informed
4. Assets Under Management (AUM) Model
This is one of the most common pricing structures, especially among investment advisors.
How it works:
You pay a percentage of the assets the advisor manages for you—typically around 0.5% to 1.5% per year.
$100,000 portfolio → ~$1,000/year at 1%
$1,000,000 portfolio → ~$10,000/year at 1%
Why it matters:
The advisor’s income grows as your portfolio grows, which can align incentives. However, it may also discourage them from recommending strategies that reduce managed assets (like paying off a mortgage or investing outside their platform).
Best for: Investors who want ongoing portfolio management
5. Hourly or Project-Based Advisors
Some advisors work like consultants—you pay only for the time or project you need.
How they charge:
Hourly fees for advice sessions
One-time planning fees (e.g., retirement plan, debt strategy)
Why it matters:
This can be a cost-effective option if you don’t need ongoing management. It also minimizes long-term commitments.
Best for: DIY investors who want occasional expert input
6. Robo-Advisors (Automated & Low-Cost)
Robo-advisors are digital platforms that manage investments using algorithms.
How they charge:
Low AUM fees (often 0.25%–0.50%)
Minimal or no human interaction (unless hybrid)
Why it matters:
They’re significantly cheaper than traditional advisors, but less personalized. Some platforms now offer access to human advisors for an additional fee.
Best for: Beginners or cost-conscious investors
Financial Advisor in Chicago, IL
Stenger Family Office - Chicago Financial Advisors
150 N. Riverside Plaza
Suite 1950
Chicago, IL 60606
(630) 912-8295