How Are Financial Planners Compensated?

By Jon L. Ten Haagen, CFP ®

“You get what you pay for” – especially when it comes to paying for professional advice. If you want good, sound professional advice, you’ll probably have to pay for it. How you pay for it will vary, according to the compensation method used by your Certified Financial Planner (CFP).  Be sure the compensation method is suited to your particular needs and situation.

Up front, be aware that ‘everyone’ in ‘financial planning’ is a ‘financial adviser.’ What does that mean? Back in 1986, a major large brokerage firm decided it sounded better to call their stockbrokers ‘financial advisers.’ Be careful choosing a planner. Many who call themselves ‘financial planners’ have no additional training or education to help you with the ins and outs of proper estate planning, reviewing beneficiary designations and review of your insurance plans, etc. Ask a lot of questions to determine if this is the person you want handling your ‘precious cargo.’

Generally, financial planners are compensated in one of four ways: Only by fees, a combination of fees and commissions, solely by commissions or through a salary. In some cases, a financial planner may offer more than one way of getting compensated. How do these different methods work?

Fee only: This is charged for developing a financial plan and providing advice about implementing the plan and choosing the investments. Alternatively, they might charge an hourly fee, much like an attorney. The plan fee will depend on how much time the planner spends designing the plan and reviewing with you, and discussing investment options. The plan could be the perfect plan for your circumstances, but if you are not comfortable, it has to be massaged until you can sleep at night with it.

Fee only planners typically will advise you on investments, insurance and other financial vehicles, and most will help you follow through on recommendations using no-load mutual funds and other investment products. The fees for helping select and monitor these investments is usually a percentage (1 percent-3 percent) of assets annually.

Fee plus commission: Some planners charge a fee for preparing your financial plan and may help you implement the plan by offering certain investment or insurance products. They typically earn a commission on the sale of those products.

As with fee-only planners, fee plus-commission planners may charge a flat fee or bill you based on the amount of time they spend on your plan. Others use a fee scale, varying their fees according to the complexity of your financial situation.

Once your plan is completed, the financial planner will review it with you and suggest ways you can implement the plan by purchasing investment or insurance products. You may buy them through the planner, or – as with many fee-only planners – you may choose to buy those products elsewhere.

Commissions and other sales charges can vary greatly from product to product, i.e. from one mutual fund to another. Don’t hesitate to ask your planner for the amount of commission on the product, or ask your planner to explain how the commission will affect the return over the expected life of the investment.

Commission only: Some financial planners charge no fee but are compensated solely by commissions earned by selling the products and services necessary to implement their recommendations. A commission-only planner will develop your financial plan, review the plan with you and discuss ways to implement the plan. The only way the planner receives compensation is when you choose to buy the products and/or services the planner is offering.

Salary: Many banks, credit unions and other organizations offer financial planning services. In most instances, staff financial on their staffs are paid a salary, and earn neither fees nor commissions. In some cases, staffers are incentivized to get you to buy certain products, similar to auto sales people suggesting one model over another. The organizations are compensated through the sale of financial products and/or services.

Once a plan is completed, you have options for implementing the strategies recommended in the plan through purchase of investments and other products. If an advisor helps you select and monitor that product, there will be some cost to you and/or payment to the advisor. This could be in the form of a commission, redemption fees, trail fees, “payout” (as in an insurance agent), or asset management fees.

Additionally, many investment and insurance products charge annual management and transactional fees. For example, if you open an Individual Retirement Account, the company that serves as trustee will charge an annual custodial fee for the service. These costs are in addition to any fee you may pay the financial advisor for your plan.

You may read in newspapers or hear on television a lot of conflicting information about different methods of compensation. Next issue we will try to answer some of the most frequently asked questions regarding how financial planners are paid.

Until next time enjoy the rest of your summer and please write to ask any financial questions you want to learn about. You can write to the newspaper at, or by visiting We look forward to answering specific items you have on your mind. 

Additionally, our Ask the Expert, Jon L. Ten Haagen, CFP is doing a financial radio show on on 103.9 FM, which airs on Saturdays, 12 noon-12:30 p.m. It is best heard going east on the island. It is called the Portfolio Repairman. I hope you can listen in and I would love to get your feedback.