How Do Financial Advisors Make Money?

How Do Financial Advisors Make Money?

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Certified Financial Planner: Board of Standards. "About us." http:///aboutus/ (Accessed 8/14/08) Certified Financial Planner: Board of Standards. "How to Choose a Planner." http:///learn/knowledgebase.asp?id=6 (Accessed 8/14/08) MacDonald, Jay. "Financial planners: not just for millionaires anymore." (Accessed 8/14/08) NAPFA. "Find an Advisor." http:///consumer/planners/index.asp (Accessed 8/14/08) Womens Finance. "Financial Planning: Types of Financial Planners." (Accessed 8/14/08)

Financial Advisors and Investments

It’s important for you, as the consumer, to understand what your planner recommends and why. You should not follow an advisor’s recommendations unquestioningly; it’s your money, and you should understand how it’s being deployed. Keep a close eye on the fees you are paying—both to your advisor and for any funds bought for you.

Ask your advisor why they recommend specific investments and whether they are receiving a commission for selling you those investments. Be alert for possible conflicts of interest.

The advisor will set up an asset allocation that fits both your risk tolerance and risk capacity. The asset allocation is simply a rubric to determine what percentage of your total financial portfolio will be distributed across various asset classes. A more risk-averse individual will have a greater concentration of government bonds, certificates of deposit (CDs) and money market holdings, while an individual who is more comfortable with risk may decide to take on more stocks, corporate bonds, and perhaps even investment real estate. Your asset allocation will be adjusted for your age and for how long you have before retirement.

Each financial advisory firm is required to make investments in accordance with the law and with its company investment policy when buying and selling financial assets.

A commonality among firms is that financial products are selected to fit the client’s risk profile. Suppose, for example, a 50-year-old individual who’s already amassed enough net worth for retirement and is predominantly interested in capital preservation. They may have a very conservative asset allocation of 45% in stock assets (which may include individual stocks, mutual funds and/or exchange-traded funds (ETFs)) and 55% in fixed-income assets such as bonds. Alternatively, a 40-year-old individual with a smaller net worth and a willingness to take on more risk to build up their financial portfolio may opt for an asset allocation of 70% stock assets, 25% fixed-income assets, and 5% alternative investments.

While taking into account the firm’s investment philosophy, your personal portfolio will also fit your needs. It should be based on how soon you need the money, your investment horizon, and your present and future goals.


What Are the Types of Financial Advisors?

The term “financial advisor” covers a broad range of professionals, which presents a challenge when it comes to categorizing the types of financial advisors.

We could categorize financial advisors in terms of what services they provide —like retirement planning, portfolio management or tax guidance, for example — or the products they sell, such as stocks or annuities.

When referring to financial professionals who sell securities, the type of advisor is a broker-dealer. Insurance agents can sell fixed annuities and other insurance products, but only an agent who has earned his or her Series 7 license can sell variable annuities.

Alternatively, we may classify financial advisors according to their compensation structure — that is, whether they earn a commission or a flat fee or some other payment arrangement, their fiduciary status or registered investment advisor (RIA) status.

And these are only types of human advisors. Clients also have access to robo-advisors and digital advisors that cater to investors with lower asset levels.

For this reason, if you’re considering a career as a financial advisor, ask yourself what area you would like to specialize in and what type of clientele you want to work with.

Would you prefer to work for a large firm, or are you more suited to working as an independent agent?

The answers to these questions will guide you to the appropriate educational and apprenticeship opportunities.

How to avoid falling victim to fraudulent practices

Scammers can easily pass themselves off as financial advisors or experts, lending an air of legitimacy to their scheme.

You can use some of the search tools mentioned above, such as FINRA’s Brokercheck and SEC’s IADP, to see whether prospective advisors have any lawsuits or disciplinary actions filed against them, and ensure they’re registered with the SEC and FINRA.

That being said, “real” registered financial advisors can also engage in investment fraud. So even if you are meeting an advisor with a seemingly legitimate practice, you should know what practices are considered fraudulent and what signs to watch out for.

A legitimate, trustworthy financial advisor will:

  • Fully disclose potential conflicts of interest
  • Set realistic expectations when it comes to earnings (as opposed to grand promises of consistently above-average returns)
  • Give you an accurate assessment of the risk associated with each investment
  • Always act in your best interest

Steer clear if you notice any of the following:

  • High-pressure sale tactics
  • Use of phrases like “once in a lifetime opportunity” or “breakthrough technologies”
  • Cold calls from unregistered and unsupervised salespeople claiming to be brokers
  • E-mails from unknown senders promising a great investment opportunity
  • Refusal or delay in sending information about an investment in writing
  • Advice to keep the investment opportunity “confidential”
  • Pressure to make a quick decision

Affinity fraud

This scam exploits the trust between tight-knit communities and specific groups of people (ethnic, religious, professionals, the elderly, etc.). A scammer will approach and convince a trusted member to invest, who then unwittingly encourages more people from their community.

The investment generally turns out to be a Ponzi scheme. By the time people are wise to the scam, the money is long gone. Always be skeptical of an investment opportunity and analyze it thoroughly, no matter who presents it.


Your broker makes an excessive amount of selling and trading with the goal to increase their commission earnings, disregarding your best interests. Watch out for unauthorized or frequent trading, and any suspiciously high amount of fees in your portfolio, as it could be a sign that your broker is defrauding you. Be especially wary of advice to buy variable annuities, as they have very high fees, and are commonly pushed by brokers who want to earn higher commissions.

Promissory notes fraud

Promissory notes are a legitimate form of investment. Investors lend money to a company, which in turn promises a fixed return. However, promissory notes are commonly used to scam individual investors so before investing in these types of securities, you must check out their legitimacy.

A promissory note must be registered, either with the SEC or with the state securities regulator. You can verify a promissory note online with the SEC’s EDGAR database or by calling the state securities regulator.

Pump and Dump

This scheme artificially raises the value of a company (“pump”) by spreading misinformation, with the goal to increase demand and inflate the value of the stocks. After the stocks have gained their temporary, artificial value, the scammers will sell their shares (“dump”) at the inflated price, and profit. After that, the stock goes back to its true value and the other unknowing investors lose their money.

You can notify the SEC of any suspected securities fraud by using their Tips, Complaints and Referrals Portal. If eligible, you can apply for whistleblower status and earn additional protections and confidentiality guarantees.

7. Get Organized

Why is organization a key to success? Easy: If you’re not well organized, it’s much harder to be productive.For instance, If you waste 20 minutes looking for a file, that’s time you could’ve spent on more important tasks, like connecting with a prospect. In a past issue of my newsletter, I shared personal and professional organization tips, because it amazes me how little financial advisors consider the importance of minor details like having organized paperwork. It’s not uncommon to let papers pile up, or for your computer files to be out of whack. Although it seems harmless to lose a few minutes here and there to disorganization, think about how much that time adds up to — then calculate the amount of money you lose in the process.

2. Commissions

A large portion of a financial advisors income in Canada is paid through commissions.

While earning extra income through commission sales is great for a financial advisor, it might not be so beneficial for their client.

3. Have A Sense Of Control

Six-figure earners know they’re the captains of their own ships. This is especially true for financial advisors, because you don’t have a boss in the traditional sense. You make your own hours and set your own vacation schedule.While it’s nice to have a career with that much freedom, it’s a disadvantage for people without self-control. High-earning financial advisors are self-starters. You realize nobody will save you, and if you want to make the big bucks, you have to create a plan and get to work.

Paying a Financial Planner

While a financial planner helps clients make and save money, one may wonder where and how they get paid?

Financial planners make their income and revenue one of two ways, through commission or set fees.


When a financial planner makes their earnings through commission, if one makes money, they too earn money. Financial planners paid through commission can make commission either through fees or through a percentage of the returns for their clients.

Depending on the financial plan that the client has, the commission is going to vary; for example, there are transaction commissions, which are typical for financial planners who deal with investments based on the stock market.

With a commission-based income, the financial planner may earn more or less depending on their clients' performance of their investments.


As a financial planner who earns a salary, this typically means that they work for a bank or company that can provide financial stability and compensation. The misconception with a salary is that this is the only source of income for the financial planner; however, depending on the financial institution and the type of investments the planner deals with, they may be eligible for commission and or bonuses.

Bonuses are something that a financial planner can receive regardless of commission or salary based as much of the work of a financial planner is heavily set on performance; therefore, if they perform well, they are rewarded for it.

How Do I Know if Their Fee Is Reasonable?

You can feel confident that you’re paying your financial advisor a reasonable fee if it falls within the average price of the market. Of course, knowing this amount can be a challenge because the range you pay will be based on your location, your investment amount, and the complexity of your financial plan.

Here’s an average breakdown of what those costs could look like for each of the ways advisors are paid:

  • Commission: The average commission is based on a percentage of your investment in a fund, which falls between 3–6%.
  • Hourly fee: The average hourly financial planner fee ranges between $120–300.
  • Flat fee: The annual flat fee for a financial plan can be as low as $500 to more than $10,000, depending on your net worth, where you live, the services you’re using, and how many assets your advisor is managing for you.
  • Retainer fee: The average annual financial planning retainer is between $6,000–11,000 or a percentage of the assets under management with your advisor, usually somewhere between 0.5–2%.1

Investing fees are confusing, so a good advisor will understand if you have questions. They should be happy to clarify any confusion. That way, you understand what you’re paying for and what you’re getting for it. You should never put up with an "advisor" who can’t or won’t answer your questions. And never work with anyone who loses their patience with you.

3. Salary

Like a lot of commission jobs, financial advisors in Canada also get paid a base salary on top of their commissions, fees, and bonuses.

A salary is a fixed income paid to employees on a regular basis – bi-weekly, twice a month or maybe even once a month.

If a financial advisor tells you their base salary is $48,000 a year, that just means that regardless of their performance, they will earn $4,000 a month in pre-tax income.

Not always, but a lot of times big financial institutions will pay their new financial advisors a salary during their early years. Once the advisor has established a client base where they can support themselves without their base salary, they take it away.

While this is a gesture of good faith by the employer, it’s also a good incentive program to get high quality professionals to join their firm.

I have included a screenshot below from to give you a general idea of what some of the big financial institutions in Canada are paying their financial advisors in terms of salary.

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How to Compare Financial Advisor Costs

If you’re looking for an advisor to work with, there are a few ways you can research their fees. The first is to check their Form ADV filing if they register as an investment advisor with the U.S. Securities and Exchange Commission. This form is a public disclosure that outlines how the advisor makes money and what fees they charge. It also has tons of information about their services, disclosures and more.

You can also review an advisor’s fee schedule online if they advertise their fees. And if they don’t, the next step is to ask them directly. Ideally, you want to work an advisor who’s transparent about how their fees and what you’ll pay. Keep an eye out for advisors who dodge questions about fees or seem reluctant to share how they make money. That’s a sign that you may want to look elsewhere for financial planning help.

How Much Money do Financial Advisors Make?

The average financial advisor salary in the United States is $74,779. Add $33,450 in commission to that. Of course the fee percentages vary by state. A law degree boosts your income by almost 80 percent.

Prudential is the top advisory firm in New York.

How to Maximize Your Earnings as a Financial Advisor

Maximizing your earnings is in your best interests. Here’s how to bump up what most advisors receive.

  • Ask for a retainer fee. This can help you stay afloat during market downturns. Make sure you’re only asking for a reasonable fee here.
  • Sell insurance products. This is a good investment product to sell clients. Especially if you sell life insurance. Approaching an insurance company can work. Finances include this type of retirement planning.
  • Mange money. These fee based advisors steer clear from conflicts of interest. And ongoing management like this is profitable. There’s usually a performance and not hourly fee involved.
  • Set Up A Plan. You can set up a financial plan for a flat fee. Charge up between $2,500 to $3,500.

Financial advisors get paid from a client’s mutual fund too. Remember that fee only financial advisors get less than commission based ones. Consider a variable annuity if you’re going to sell investments.

COVID-19 and financial advisors

Before the Covid-19 pandemic, finance experts prioritized in-person meetings with their clients and the bulk of the counseling was still done face-to-face, but this has changed with the pandemic.

Stay-at-home orders pushed professionals to turn to video calls in order to keep their business relationships running and help the increasing demand of clients in need of advice.

Although face-to-face meetings will still be important, video calls and other digital means of communication are expected to stay in place even after a return to normalcy.

People looking to hire a financial advisor online will find it increasingly easier, as many agencies and self-employed professionals are adapting and growing their online presence and services.

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The Bottom Line

Not all financial advisors have the same level of training or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.

Check out their certifications as well, and be sure you understand, agree with, and can afford their fee structure. Also, investigate their regulatory history with your state regulatory agency, FINRA’s BrokerCheck, and the SEC’s Investment Advisor Public Disclosure database.

Finally, be aware that finding an advisor who is the right fit for your personality is key to developing a successful, long-term relationship.


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