How Advisor Compensation Models Are Evolving


In recent years, commission-based financial advisers have seen a decline in new business in the wealth management industry. Why? Because the investment industry as a whole has largely shifted towards fee-based financial advice, as clients seek to pay only for the services they need.

  • Fee-based financial advisers have seen a decline in new business in recent years across the wealth management industry.
  • The interests of fee-based financial advisers are perceived to be more aligned with their clients because they do not earn income from the sale of specific financial products or securities.
  • If an investor doesn’t have sophisticated financial planning needs and just wants help with investment selections, a commission-based financial advisor may be the right choice.

The trend towards fee-based advisers

According to the research firm Cerulli Associates, generally commission-based assets grew from just 26% of total adviser assets in 2018 to a whopping 45% at the end of 2018.

Additionally, investors are becoming increasingly aware of fee structures. In 2011, Cerulli found that only 10% of investors were aware of payment models only. But in 2018, a solid 34% of investors were on the fee-based compensation model.

The trend is clear: the client pool for commission-based financial advice is shrinking and advisers must rethink their service offering if they want to remain competitive in this rapidly changing regulatory industry.

That said, the question that both advisors and clients should ask themselves: Is there still a place for commission-based advice in the world of wealth management?

The role of commission-based financial advisers

Fee-based financial advisers deal strictly with investment strategies.

They operate in a similar way to stockbrokers in that they actively buy and sell securities for their clients. These advisers receive commissions, not from their clients, but from the companies where they buy the securities.

Since the financial crisis of 2008, the financial advisory industry has become skeptical of fee-based advisers because their services are perceived to be limited to investment strategies. Many consumers now suspect that commission-based financial advisers can prioritize their results over the best interests of their clients.

The role of fee-based advisers

Fee-based financial advisers have a completely opposite income structure. These financial advisers are paid by their clients for the services they provide. The advantage of this is that fee-based advisers offer a variety of services beyond the scope of investments, such as taxes, inheritance, and retirement planning.

Fee-based financial advisers are perceived to always care about the best interests of their clients because they do not earn income from the sale of specific financial products or securities. They are only paid (by their clients) for the services provided.

What type of advisor is better?

The answer depends on the customer’s needs.

If an investor doesn’t have sophisticated financial planning needs and just wants help with investment selections, a commission-based financial advisor may be the right choice.

There will be no out-of-pocket expenses for the investor because the securities company pays the advisor. Clients who still have questions can review whether the suggested investments best suit their needs by researching the options presented.

Although their clients pay advisers for services, and not for financial products sold, they still get paid in one form or another.

Yes, clients only pay for services provided, but if the advisor does not recommend new services, they are not paid. The other side of the coin is that consumers should not expect to receive professional service without paying for the service provided. (For related reading, see: Should you choose a one-time financial advisor?)

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Mark Holland

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