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By Ryan J. Hurn, CFP, ChFC, FSCP – Assistant Vice President & Relationship Manager
In the hierarchy of uncomfortable conversation topics, money continues to rank near the top. While people discuss a wide range of subjects in both social and professional settings, financial matters remain largely off-limits—despite their central role in everyday life.
In financial services, however, avoiding discussions about money has its limits. At some point, a client will inevitably ask an important yet often uncomfortable question: “How do you get paid?” This may be met with a nervous laugh, a vague reference to a brochure, or an abrupt change in subject. But the truth is, understanding how financial professionals are compensated is not intrusive—it is simply prudent. Because compensation structure may significantly influence advisor recommendations, it is a topic that must be discussed.
For the purpose of this article, the term ‘advisor’ will be used broadly to include agents, brokers, advisors, and planners.
Sales-Based Commission
In a commission-based model, advisors are compensated for helping clients purchase financial products such as mutual funds, annuities, or insurance. The cost is typically built into the product, which means clients often do not see a separate fee. For many, this can be an accessible way to receive advice and implement financial strategies without an upfront cost.
Advisors operating under this model may follow a suitability standard, which requires that recommendations are suitable for the client’s needs and circumstances. Like many compensation structures, it’s important to be aware of how incentives can shape recommendations. This model has a long-standing place in the industry and continues to offer value, particularly when paired with professional integrity and a focus on client outcomes.
Clients should feel encouraged to ask questions and understand the total cost of any product or service; additionally, tools like FINRA’s BrokerCheck allow you to see if any complaints or disclosures have been filed.
Fee-Based Compensation
The fee-based model incorporates both advisory fees and commissions. Advisors may charge a percentage of assets under management (AUM) while also earning income from product sales. This hybrid structure offers flexibility and can support long-term client relationships, particularly for those who value comprehensive services and ongoing advice.
However, it can present challenges. Dual compensation introduces competing incentives, and advisors may alternate between fiduciary, best interest, and suitability standards – sometimes within the same conversation. It’s comparable to hiring a contractor to build your home who also happens to sell the construction materials. The arrangement may work, but the potential for conflicting interests is present.
Fee-Only Compensation
Fee-only compensation offers the most transparent and client-centered approach. In this model, advisors are compensated solely by the client, with no commissions or third-party incentives involved. Fees may be structured hourly, as a flat rate, or as a percentage of AUM, but they are always clearly disclosed. Many fee-only professionals hold advanced credentials and adhere to a fiduciary standard, which requires them to act in the client’s best interest—both legally and ethically.
While visible fees may feel unfamiliar to those used to costs being built into financial products, this approach promotes greater clarity, objectivity, and trust. For individuals that prioritize long-term planning and transparency, fee-only arrangements are often considered the gold standard.
Why Compensation Matters
Compensation models shape how financial advice is delivered. This does not mean one method is inherently better than another, but clients should understand how their advisor is paid and what incentives may be at play. Simply asking, “How do you get paid?” and “Are there any financial incentives I should be aware of?” can foster open dialogue and build trust.
It’s also worth noting the context behind industry recognition. Titles and trophies like “Top Producer” or “President’s Club” typically reflect sales performance rather than client satisfaction or outcomes. While these honors highlight professional achievement, they may not provide insight into the quality of service or alignment with client goals.
Conclusion
In financial matters, asking thoughtful questions is not only appropriate, but responsible. Understanding how your advisor is compensated allows you to make more informed decisions and ensures the advice you receive is aligned with your best interests. Be proactive, ask questions, and stay engaged. Clarity around compensation is a key area in building trust and a successful financial future.
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