One of several reasons many people are reluctant to hire a financial advisor is confusion as to the advisor's compensation and concern about ulterior motives. Given all the Bernie Madoffs in the recent news and the failure of regulators to do their part, trust of the financial community is understandably low. That said, comprehending how advisors make money is not difficult. Although few advisors will publish a rate schedule, nearly all will quite willingly disclose their compensation upon request - they have to. Learn the different methods in which financial advisors get paid before you hire one.
How is your advisor paid? When did you figure that out?
Advisers generally get paid on a fee basis i.e. % of account like 1% with no fee on trades etc…. or by commission in which they do get paid based on the trade. People consider fee based or managed accounts as everyone being on the same page. What may come to play in the future is a consultant fee i.e. hourly fee for opinion etc..
Mike — Great post. This is something I’ve thought about for a long time. I’ve always thought that if the advisor was worth their salt, they should charge a fee on the total gains they get for their clients on an annual basis. I would even pay a higher percentage on the gains than they normally charge their clients as a percent of total assets (and in down years, they could charge a low, flat fee). Maybe I’m just dreaming…