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How Do I Pay My Advisor

One of the problems in the financial advice industry is a lack of transparency around pricing and how advisors get paid.

It can be complicated, but I’m going to try to make it simple.

There are three main ways advisors get paid:

  • A percentage of transactions you do with them (Commissions)

  • A percentage of the money you have with them (AUM)

  • An unrelated, stated amount (Fee-only)

What’s even more confusing is that some advisors may receive compensation in 2 (or even all 3) of these ways.


If an advisor is paid on commissions, it’s not really you who’s paying the advisor, it’s the company of the product they sell to you. This is common with a few different products:

  • Life insurance (often a portion of the first year’s premiums, but it depends on the type of life insurance)

  • Annuities (often 4%-8% of the initial purchase price plus a small, ongoing percentage)

  • Mutual Funds (often 5-6% of the initial purchase price plus 0.25% annually on the balance)

Life insurance and annuities almost always pay a commission to someone, but mutual funds may or may not pay a commission, and some products offer both an up-front commission and a smaller annual amount paid to the advisor. 

The fact that different products may pay the advisor different amounts is an issue in this space, as it creates conflicts of interest - is the advisor recommending the best product for you, or the product that pays them the most? I’m a believer that most people try to do what’s best, but I find it’s best to remove any shadow of doubt.

It’s not uncommon for advisors who work on commissions to have hundreds of people they work with, and usually this is the type of advisor that people with less money end up with. Why? Because they can get paid more on the sale of a product than other advisors would be charging, and it’s a much faster process to sell a product than provide full financial planning.

Pros of this model:

  • Advisors are more likely to work with less wealthy people.

  • Advisors may have a deeper understanding of their product.

Cons of this model:

  • The relationship may be more transactional.

  • There are typically more conflicts of interest.

  • Often, less financial planning is performed when compared to other models.

AUM (Assets Under Management):

This has become one of the more popular models for financial advisors over the past decade or two. It’s very common for advisors who get paid on an AUM basis to also have some income from commissions, but if they don’t, they can say that they’re “fee-only,” which simply means that they don’t make money on commissions. If they make some money from commissions, they can say they’re “fee-based,” which effectively means nothing.

Advisors who work on an AUM basis charge based on how much money you have invested with them. A common amount is 1% per year, so if you have $250,000 with them, your fee for that year would be around $2,500.

Advisors who use the AUM model often have account minimums, and they may charge a higher percentage for people who have less money with them and a lower percentage for people who have more money with them.

Pros of this model:

  • Advisors often provide a higher degree of planning.

  • There are fewer conflicts of interest than the commission model.

  • There are a lot of these advisors out there.

Cons of this model:

  • There are often account minimums.

  • Advisors may not work with people who don’t want to invest with them.

  • There are still some conflicts of interest.


As stated above, some AUM advisors are fee only, but many also sell products for commissions. But there are advisors out there who don’t get paid based on the amount of money you have with them.

There are a few different ways that this type of advisor may charge, but it’s typically more transparent than AUM advisors or commission advisors.


They may charge an hourly rate (typically anywhere from $100-400/hour).

They may charge a flat annual fee (typically $7,500+)

They may charge based on income or net worth or both (1-2% of income, typically 0.50% of net worth).

They may charge certain amounts for certain work ($500 for simpler stuff or $3,000-10,000 for more complicated, more comprehensive plans).

If you want an example of fee-only pricing, you can find what I charge on my Services page.

Pros of this model:

  • There aren’t typically investment minimums, just minimum fees.

  • Most fee-only models limit conflicts of interest more than AUM or commission.

  • Advisors are more likely to provide deeper financial planning.

Cons of this model:

  • The minimum fees may be higher than what you’d pay on a different model.

  • Some advisors don’t offer as many services.

  • For instance, some may not be able to place insurance or manage investments.


I write this post not to say that certain models are better or worse than others, but to provide more transparency around the world of financial advice. There is a wide range of people who all call themselves financial advisors, so it’s good to understand not only how your advisor is paid, but how that incentivizes the advice they give.


As always, keep in mind that you don't have to go it alone. I’m Austin Preece, a financial planner in Eau Claire, Wisconsin, and I work virtually with people across the US. Check out my website to see what it's like to work with me and reach out if you have any questions.

If you found this post helpful, help spread the word! Share with friends and family that you think may benefit as well. But remember, this is solely for educational purposes - it's not advice.

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