Decoding Financial Advising: How Do Planners Get Paid?
A tax colleague recently asked about my financial planning fees: “Are you using an AUM model or fee-based?”
Mixup in terminology there. Totally understandable.
A quick intro to how financial planners make $$:
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Commission-based: e.g., an advisor helps you purchase an insurance policy and is compensated by the insurance company.
Fee-only: an advisor receives payment only from their client. This could take the form of an “AUM” fee - a % charged on investable assets the advisor oversees, hourly fee, fixed/flat project or recurring fees, a % of the client’s net wealth or income, etc.
Fee-based: combination of the previous two. e.g., an advisor receives a commission on the investment you purchase + they charge an AUM fee on that investment.
Back to the original question, we can now see an AUM charge can be part of a fee-only model OR a fee-based model. And to answer that question, my pricing model is fee-only to include AUM & fixed fees varying by client.
As you’re looking to work with a financial planner, asking them how they are compensated is part of your due diligence. Ask them directly + look up their Form ADV at https://adviserinfo.sec.gov/
