You Ask, We Answer: How do financial advisors make money?

8 Jan 2016 | COMMENTS: 0 | Author: Ryan Smith | we answer

Before you decide to get advice from an FA, it’s kind of important that you know a little bit more about what they do, how much they charge, and also how they make money.

We will discuss ‘what do financial advisors do’, and ‘how much do financial advisors cost’ in coming weeks. But for now, we’ll look at how advisors make money.

Historically, financial advisors were able to earn by offering certain products to clients – being paid commission on these by the product providers.

This was banned at the end of 2012.

Advisers are now split into two categories, restricted and independent.

Restricted advisers can choose to focus only on a particular market and consider products only from certain providers.
Independent financial advisors can consider all retail investment products.

Advisers are no longer able to be incentivised by commissions to recommend one product over another.

The way advisors charge you and make money nowadays is in one of the following ways:
• An hourly rate
• A set fee (usually for one-off work)
• A monthly retainer
• A percentage of the money invested

Remember that a financial advisor should offer you a free consultation to discuss your goals and expectations before you choose to do business with them. They’re providing a service so fees should be a major discussion in this consultation.

It’s also perfectly acceptable for you to ask them how they make money, so don’t hesitate if you really want to know.

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