Money is a tricky matter to delve into. Luckily we have experts to turn to when the numbers become challenging to crunch up. Unlike accountants, financial advisors help us plan our investments and suggest money moves for our benefit.

Overall, financial advisors possess the knowledge that will aid clients in achieving their financial goals. They construct plans regarding budgets, investments, insurance, and taxes in accordance with their customers’ requests. Want to be one? They earn decently, too, and here’s how they make money:

Commissions

As someone who wants to get impertinent knowledge regarding financial planning, it is crucial to know how advisors make money in order to understand how their incentivized recommendations to clients can affect their relationship with you.

You can earn commissions from financial transactions with clients. Mikhail Nilov | Pexels

Sometimes, they get a commission for financial transactions like selling securities, mutual funds or stocks as well as insurance policies. This is sort of a sideline, too, for financial advisors. For example, as a client, you invest $5K  into a mutual fund the expert has recommended, then they would get a commission fee of three percent, meaning they would earn $150.

This will only happen if you are with a fee-based structure, although not many clients are a fan of this. Since financial advisors are required to create a plan tailored to their client’s wishes and needs, the conflict may arise as to the interest of the experts— to help or to earn?

Fee-Only Structure

Depending on the firm, you can earn through commissions or not. If the company follows a fee-only structure, you earn directly from the clients. Most often, financial advisors get paid by their clients by the hour.

Most financial advisors are paid by their clients. Rodnae Productions | Pexels

Then, some charge a percentage of the assets. For instance, if you’re handling $1 million worth of assets of a client and you’re charging one percent, then you will be paid $10K, sometimes quarterly depending on the agreed structure.

Performance Fees

Remember receiving gold stars or stamps for a job well done when you were younger? You also get the same treatment as a financial advisor, except that you get rewarded with a performance fee instead of stars.

You can ask for performance fees from the client for a job well done. Yan Krukov | Pexels

An expert could ask for this fee from their client if they were able to exceed return expectations or reach a specific investment benchmark.

Salaries

Then some are only paid by their firm, meaning they don’t get commissions from their clients. Sometimes, financial advisors under this payment scheme also get incentives for a milestone achieved or for a job well done.