If you’re thinking about hiring a financial advisor, it’s natural to wonder what the relationship will cost and how the advisor gets paid. Those questions matter because an advisor’s compensation can affect both the services you receive and the potential conflicts you should understand.
Financial advisors may charge a percentage of the assets they manage, a flat or hourly fee, commissions, or a combination of these approaches. No single structure is automatically right for everyone.
The goal is to understand what you’re paying, what is included, and whether the relationship supports the goals and level of guidance that matter to you.
Who Pays Your Financial Advisor?
Before comparing percentages and dollar amounts, start with the simplest question: Where does your advisor’s compensation come from?
Depending on the advisor and firm, you may pay directly for financial planning or investment management. In other cases, the advisor may receive compensation from a financial product provider when you purchase a product.
That distinction is important because some compensation arrangements create incentives that are worth understanding.
For example, an advisor who receives a commission when you purchase a particular product has a financial connection to that recommendation. That does not necessarily make the recommendation inappropriate, but you should know how the advisor is paid and what alternatives were considered.
By contrast, a fee-only advisor is compensated exclusively by client-paid fees for the services they provide. Because the advisor doesn’t receive commissions from financial products, the compensation structure can reduce certain product-related conflicts of interest.
That brings us to an important distinction: fee-only and fee-based are not interchangeable terms.
Fee-Only vs. Fee-Based: What’s the Difference?
The terminology can be confusing because “fee-only” and “fee-based” sound almost identical. Let’s break down the difference.
A fee-only advisor is compensated exclusively through fees paid by clients. Those fees might be based on assets under management, a flat annual or retainer fee, or an hourly/project fee.
A fee-based advisor, on the other hand, may receive both client-paid fees and commissions or other compensation.
If you’re unsure, ask the advisor directly:
“Besides the fees I pay you, do you or your firm receive any commissions, referral fees, or other compensation related to the products you recommend?”
You can also review the firm’s Form ADV, which provides information about an investment advisor’s business practices, fees, and potential conflicts of interest.
The Most Common Ways Financial Advisors Get Paid
Assets Under Management (AUM) Fees
At Plancorp, our advisory fee is based on the assets you invest with us, often called an assets under management, or AUM, fee.
As the value of the managed portfolio changes, the fee generally changes as well. We use a tiered schedule, so the percentage applied to additional assets decreases at higher portfolio levels.
For example, an advisor charging 1% annually on a $1 million portfolio would charge approximately $10,000 per year. If the portfolio grows to $1.5 million, the fee would generally increase because the amount being managed has increased.
This structure is commonly used for ongoing wealth management because it can support more than portfolio management alone. Depending on the firm and engagement, the relationship may include retirement planning, tax strategy, estate coordination, insurance analysis, and guidance through major financial decisions.
For clients with greater complexity, decisions involving taxes, investments, retirement planning, and estate considerations often influence one another. Many ongoing wealth management relationships are designed to evaluate those decisions within a broader financial context.
For a deeper look at the tradeoffs between AUM and flat-fee models, see AUM vs. Flat-Fee Wealth Management: Which Model Truly Serves Your Best Interests?
Flat or Retainer Fees
With a flat-fee or retainer arrangement, you pay a predetermined amount for a defined scope of service rather than a percentage of managed assets. This can be useful when you want financial planning but do not need ongoing investment management.
A predictable fee does not necessarily mean a lower total cost or broader service. Before comparing it with another model, confirm what is included, what may cost extra, and how the arrangement adapts as your needs change.
Hourly or Project-Based Fees
Some financial planners charge by the hour or offer one-time planning engagements.
This can make sense if you have a specific question or project, such as creating a retirement plan, evaluating stock options, or determining how to invest proceeds from the sale of a business.
The benefit is flexibility: you’re paying for the advice you need without necessarily committing to an ongoing relationship.
Hourly or project-based advice can be a practical fit when you have a focused question or a clearly defined planning need. If your financial life involves several connected decisions or requires ongoing coordination, however, a project-based arrangement may provide less continuity and make future costs harder to anticipate.
Commission-Based Compensation
Commission-based advisors earn compensation when clients purchase certain financial products or complete certain transactions.
Depending on the arrangement, commissions may be associated with products such as insurance policies, annuities, mutual funds, or other investments.
Again, receiving a commission doesn’t automatically make an advisor’s recommendation unsuitable. But it creates a financial connection between the recommendation and the advisor’s compensation.
That makes it particularly important to ask what alternatives were considered, how the advisor is compensated, and whether the recommendation would generate a commission.
Why the Lowest Fee May Not Tell the Full Story
It’s tempting to compare advisors by looking for the smallest percentage or annual fee. But financial advice isn’t a commodity where the lowest sticker price is necessarily the best deal.
Consider two advisors:
- Advisor A charges 0.50% but provides investment management only
- Advisor B charges 1.00% and provides investment management plus ongoing retirement, tax, estate, insurance, and cash-flow planning
Advisor A is cheaper based on the percentage alone. But that doesn’t tell you which relationship is less expensive for your particular needs.
Some investors may value additional planning support, particularly when financial decisions involve taxes, estate planning, concentrated investments, business ownership, or other areas that benefit from ongoing coordination. The potential impact of that guidance may be more meaningful than the difference between two headline fee percentages.
This becomes especially important when your financial life includes equity compensation, concentrated investments, multiple income sources, charitable giving, estate considerations, or significant tax exposure. In those situations, it may be useful to ask:
“What am I receiving for the total cost, and does the relationship provide the depth of guidance I need?”
For a more detailed look at the costs associated with wealth management, see How Much Do Wealth Management Services Cost?
Questions to Ask Before Hiring a Financial Advisor
You do not need to be fluent in financial industry terminology to evaluate an advisor. A reputable professional should be able to answer the following questions clearly and in plain English:
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How are you and your firm compensated?
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Do you receive commissions, referral fees, or other payments connected to your recommendations?
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When are you required to act as a fiduciary?
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What services are included in my fee?
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How will my fee be calculated and billed?
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What investment, account, trading, or third-party costs might I pay in addition to your fee?
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Where can I review these details in your Form ADV?
The Bottom Line
How an advisor gets paid is important, but it is only one part of evaluating the relationship. Look beyond the headline percentage or annual fee by understanding who is paying the advisor, what services are included, what additional costs may apply, and whether the advisor’s incentives align with the guidance you want.
Plancorp is a fee-only firm. Clients compensate us for the services described in their agreements, and our financial advisors do not receive commissions for recommending or selling investment products.
Our fee supports investment management and comprehensive financial planning that may bring together retirement, tax, estate, insurance, and other decisions affecting your financial life.
The right question is not simply, “How much does an advisor cost?”
It is also, “Will this relationship give me the coordination, perspective, and confidence I need to make informed decisions?”
At Plancorp, we invite anyone considering our services to estimate their advisory cost with our Fee + Value Calculator. Based on your portfolio's value and years until retirement, you will receive an estimated annual advisory fee, along with an illustration of potential planning outcomes based on assumptions used within the calculator.
