How do financial advisors calculate their commission percentage? You may need to find out whether they’re the ones who determine the percentage in the first place.
We’re unpacking the world of commission-based financial advisors and the specific guidelines, service types, partnerships and laws that determine their commission percentage.
Financial advisor commissions 101
Financial advisors may have different fee structures or pricing modules – perfectly normal. However, the key to comparing and understanding their fees starts with understanding how it is calculated in the first place – especially when it comes to commission.
In essence, there are two overarching types of commission:
- Upfront commission: a once-off amount when you take out the product or investment
- Ongoing commission: paid every month for the life of the product or investment
There are several different ways that advisors can receive a commission. For example, some advisors may take a commission when their client decides to open an account, whereas others may receive a percentage from selling a specific financial product.
If this is the case, your financial advisor’s commission will be included in the cost of the product. After that, the entity that issues the product will pay the financial advisor the agreed-upon rate.
What is a reasonable commission for a financial adviser?
What an IFA decides to charge will depend on the scope of financial services they offer and the fee structure they use for its practice.
How to calculate financial adviser commission
To protect consumers, there are specific rules and standards that financial advisors (FA) must adhere to. Generally, FAs are registered with a state governing body or regulatory entity. If this is the case, they’re likely to be licensed fiduciaries. This means they must legally consider the client’s best interests when recommending financial products.
When working with a Financial Advisor that charges a fee based on the percentage of the assets they manage on your behalf, fees can range from 0.5% to 2% per annum. Usually, this means that the more assets you have, the lower the percentage of total assets your FA will ultimately charge.
This differs from the pricing structure of FAs, who work with third parties to sell financial products. Commissions on financial products have a wide range and can be anywhere from 3% to 8.5% of the total costs.
However, it should be noted that the law requires all Financial Advisors to be upfront and transparent about their commission percentage. Curious about their cut? The best way to do this is to ask.
How to calculate commission fees as an independent financial adviser
If you’re entering the world of finance, the various pricing options may seem daunting. Even more so, it needs to accurately compensate you for the amount of time and effort you allocate to specific tasks or services.
This shouldn’t cause alarm and is common under IFA with a recently launched practice.
To help facilitate a healthy fee structure, we recommend adjusting where needed to streamline the value of your services. Remember that commission rates are negotiable as long as you’re sure to notify clients of any upcoming fee increases, so there’s complete transparency on your end.
Any commission rate changes adhere to agreements within a client’s contract and FSCA regulations.
Manage your revenue streams with ease
Although you may have your pricing structure and commission fees down to a T, that doesn’t mean managing and tracking the different revenue streams becomes easier.
Rather than wasting valuable time, resources and patience, capture and collate all your commission and fee statements into one platform instead.
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