How Do Financial Advisors Get Paid?

by | Dec 29, 2022

Financial advisors earn their income through a combination of salary, commissions, and other incentives. Indeed wage surveys show that financial advisors earn an average of $17,800 annually through commissions and incentives. However, how a financial advisor is paid depends on a variety of factors, largely though, how they are paid is attributed to whether the advisor is employed by a financial firm or if they are self-employed.

When financial advisors are employed by an established firm, they are more likely to receive a base salary plus additional income through commissions, incentives, and fees from assets and funds they manage. Conversely, independent financial advisors are more likely to structure their pay around flat fees and hourly rates. Because of this, independent advisors are often referred to as fee-only advisors.

Pay Structure for Financial Advisors

In addition to a salary, there are several different components that can be factored into an advisor’s pay structure. These include:

Commission Based on Products or Services: The sale of products and services such as real estate, stocks, insurance, and loans, can earn advisors commissions. These are commonly referred to as transactional payments. 

Hourly or Flat Rates: Financial advisors get paid from fees charged when developing financial plans for clients. Additionally, financial firms typically charge an hourly rate for consultations that factor into an advisor’s pay.

Percentage of Assets Under Management (AUM): The amount of assets under management can be a source of commission for financial advisors. These earnings are calculated based on a percentage of the assets that clients have invested.

Retainers: Financial advisors often charge their clients retainer fees where clients will be expected to pay upfront for an estimated amount of services and time. These fees can be additional income for advisors. Retainer fees can be calculated based on a percentage of a client’s investment, income, net worth, or a combination of all three.

More often than not, financial advisors are paid through a combination of commissions, flat fees, and earnings calculated based on percentage of AUM. 

Two financial advisors review charts and reports to track commissions earned.

Commissionable Revenue for Financial Advisors

Commissionable revenue is revenue generated from the sale of a product or service minus any taxes or discounts. For financial advisors, commissionable revenue translates to what their commissions and incentives are calculated off of. Below are some examples of what types of commissionable revenue financial advisors may receive. 

Advisory fees: These can either be a percentage of assets managed or a flat, ongoing cost.

Annuities: Commissions are built into the price of the annuity contract and may be received as a single lump sum payment or a series of smaller payments depending on the terms of the contract.

Insurance Products: Commissions are calculated based on the annual premium of the insurance policy. The first year of a policy generally yields a higher commission percentage. After the first year, advisors receive trailing commissions, which are usually a much smaller percentage of the premium.

Mutual Funds: Investopedia reports the sale of mutual funds can earn advisors commissions of 0.25% to 1% of the assets invested in the fund on an annual basis. The advisor will continue to earn commissions as long as the investment remains in the mutual fund.

Trailing Commissions: Investments that carryover from year to year can earn advisors trailing commissions. These are recurring commissions that are earned each year a client owns an investment.

Upfront Sales Fees: When a client pays upfront for a product or service, advisors receive commissions at the time of each sale.

Automate Calculations for Financial Advisors

The pay structure for financial advisors is far from simple. Parsing through client portfolios, investments, and product sales in order to even begin calculating their pay can be a tedious and time-consuming feat. Additionally, the rates for calculating commissions can vary quite significantly depending on the products sold, whether or not it’s the first year of the investment, or if incentives are calculated based on percentage of a client’s wealth.

To streamline this process, Core Commissions provides a flexible and customizable solution to completely automate the calculation and reporting of all earnings that factor into a financial advisor’s pay. Core’s solution can support data uploads from multiple sources and interactive dashboards allow employees complete visibility into the components that make up their earnings.  

Contact us for more information or schedule a free demo to learn how Core can simplify the payment process for your firm.

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