A question we sometimes get is, “Are you a fee-only advisor”? In other words, is all your revenue derived from fees paid to you by clients, either for planning or investment management, or do you receive any commissions from companies for distributing their financial products?
This question is a good one because of the perception that the receipt of commissions creates a conflict of interest between the client and the financial professional.
An overwhelming percentage of our revenues are generated by fees paid to us by clients for the work that we do. However, there are a few instances where we receive commissions from financial companies.
For instance, if a client does not have a relationship with a trusted insurance agent, they might ask us to help them with their insurance needs. This generates a commission paid to our firm from the insurance company.
Smaller accounts are typically not eligible to be managed on an ongoing fee-basis, so if a client wishes to consolidate one of those with us, we will typically place them in a mutual fund that has a commission structure.
Sometimes a client’s long-term investment plan is well-served by an annuity product of some kind. Depending on the structure of the annuity and how the clients’ accounts are positioned, placing an annuity inside an advisory account might not be the best long-term solution. In those cases, we will invest in the annuity with a commission structure that closely resembles an advisory fee (but, to be clear, is not).
The takeaway here is that while most of our revenues come from planning or investment advisory fees, that structure might not be in the best interest of the client in every situation.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.