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Financial Advisor Compensation: Fee-Based vs. Commission

By Michael Nedreski

When it comes to compensating a financial advisor, you may have heard the terms commissionable or fee-based used. 

Popular opinion seems to lean in favor of the fee-based approach for compensating an advisor. This is when an advisor charges a quarterly or annual fee to oversee and manage a person's investable assets and the fee is tied to the amount of assets placed with the firm (overall account(s) value). It's thought that this approach aligns the needs of the advisor with the needs of the client; the better the client does, the better the advisor does. And the same holds true on the downside; meaning, if assets are losing money, then both the client and advisor feel the pain. 

The other approach to investing assets and charging the client is in commissionable products such as mutual funds, annuities, insurance-backed products, and alternative investments such as non-traded REITs and Opportunity Zone Funds. In this arrangement, the vendor (product) pays the advisor a one-time (typically) commission up front, which is generally four or five times the traditional 1% fee-based asset management fee. The commission is baked into the product so the client doesn't see it. This is thought to be the more expensive option for the client because the commission has to come from somewhere. And in most instances, this is true, however, a closer examination between the two options would reveal the commissionable product would be less expensive over time because it doesn't have the ongoing 1% (or so) drag on the account value.

Of course many other variables in the commissionable product world that need to be examined to truly do a cost comparison, but for conversation's sake, you get the idea. The vast majority of advisors in our industry stand on one side or the other, meaning that they are either charging strictly on a fee basis or strictly on a commission basis, debating one another about which is better.

The Best of Both Worlds

Meanwhile, our firm stays neutral on this debate. In other words, we offer both a fee-based asset management compensation structure and commissionable products as well.   

We believe that when it comes to wealth management done right, no one solution is best suited to everyone. In fact, we often find that some blend of the two can be the best solution, and serves our clients' needs in the best possible manner.

At White Oak Wealth Partners, our fee transparency aligns our compensation with your long-term success while allowing us to deliver a level of service that would not be feasible with just one fee structure. To learn more about our flexible and comprehensive services, contact us by calling 814-835-4551, emailing michael.nedreski@lpl.com, or scheduling an appointment here. 

Investing involves risks including possible loss of principal. Investors should note that the deductions of fees will impact overall account returns.

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service. Mike and his team are continuously looking for innovative and proactive ways in which to serve their clients, acting as their independent wealth coach and personal CFO. 

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) conferred by College for Financial Planning and Life Underwriting Training Council Fellow (LUTCF) designations. Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their seven children. He volunteers in his community and at his church and his children's schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.