The appeal of having financial advisors helping out your individual or organizational cash allocation is clear and apparent. Instead of having to pour over spreadsheets, instead of having to do endless research on investment opportunities, instead of studying how similar individuals and organizations spend their money, you can simply use your time more productively by focusing on more productive or enjoyable tasks. When getting ready to hire a financial advisor it’s wise to have a good idea of how you’re going to pay those advisors. Not all financial advisory services make their money the same way, and there’s no one “best” method of payment appropriate for every organization or individual.
Salaried Financial Advisors
At the simplest level there are financial advisory services who are paid regular salaries regardless of their performance. While salaried financial management employees often receive a sliding scale of bonuses for the accounts they bring in to their firm, these individuals don’t rely on performance incentives. Salaried financial advisors most often work for banks and less expensive brokerage firms which often charge a fixed fee for their financial advisory services.
Fee Based Financial Advisors
You may also hire financial management professionals who receive their compensation entirely from fees. These individuals will charge you a flat fee for their services, like you would pay for a bank’s services, but they are generally unaffiliated with any larger organization. Some fee based financial advisors work for RIA firms, but many of them work freelance. The only incentives fee based advisors receive from their advice’s performance is client loyalty. This is a double edged sword. On the one hand these advisors make the same money regardless of how their advice performs. On the other hand they have no financial or organizational incentive to recommend an investment opportunity they don’t agree with.