How Do Financial Advisors Make Money (New)

Like it or not, in your pursuit of career excellence, you may wonder, "How do financial advisors make money?" The answer is multifaceted and nuanced. 

While it is true that as financial advisors we play a pivotal role in guiding clients toward financial prosperity, our remuneration lies hidden beneath the surface, often veiled by the intricacies of financial markets. Not anymore…

Come along as we pull back the curtain on the most popular ways financial advisors make money:

Fees For Service

Here's the lowdown:

Over the past years, fee-for-service models have witnessed a remarkable surge in popularity, particularly among independent financial advisors. These advisors have veered away from conventional commission-based structures, opting instead to charge fees for the precise services they offer.

A more predictable income

With fees laid out, your income becomes as steady as a heartbeat. No more sweaty palms wondering what's around the corner. It's like having a reliable financial compass guiding you toward a more predictable income stream.

For instance, an advisor may charge a fixed fee for creating a comprehensive financial plan tailored to a client's unique goals and circumstances. 

Pro Tip: To benefit from the fee-for-service model, financial advisors must focus on delivering exceptional value to their clients. By demonstrating expertise and providing personalized solutions, advisors can build trust and maintain long-lasting relationships. Moreover, offering a clear breakdown of the services and associated fees can enhance transparency and foster stronger client-advisor partnerships.

Commissions

Here's the thing: Working with a commission-based advisor won't cost the client a dime directly. 

Picture this: You, the brilliant advisor, recommending a tailor-made investment opportunity that perfectly suits your client's needs. And guess what? You earn a sweet commission based on the value of that transaction. Talk about a win-win!

These commissions typically range from 3 to 6% of the sale.

Now, here are tips to never forget: 

To truly thrive in the commission-based world, always put your clients' best interests front and center. Building a rock-solid reputation for honesty and integrity will do wonders. Happy clients lead to more referrals and repeat business, and that means more commissions!

Additionally, stay informed about the latest market trends and product offerings. That way, you'll always have an arsenal of top-notch choices to offer your clients. 

Performance-based Fees

Performance-based fees can create a win-win situation for financial advisors and their clients.

Let us break it down for you…

Performance fees are the name of the game when it comes to linking an advisor's payday to the performance of their chosen investments for their clients. So, here's the deal:

You, the savvy advisor, carefully select those winning investments for your clients, putting all your expertise to work. And when those chosen investments reach a value agreed upon in your contract with the client you get paid.

But remember, dear advisor, with great power, comes great responsibility. Performance fees mean your interests are aligned with your clients, and you both have your eyes on the prize - financial success!

Tip: To capitalize on performance-based fees, advisors need to demonstrate a strong track record of successful investments. Employing sound strategies and making well-informed decisions will instill confidence in clients and entice them to opt for this fee structure. However, advisors must also consider the potential risks and volatility that come with performance-based compensation, so clear communication with clients is key.

Hourly Rates

Flexible, accessible, and lucrative - that's what hourly rates are all about! Your time is valuable, and your clients know it. They come to you for advice, and they pay you by the hour - simple as that.

What might you pay an hourly financial adviser? 

It depends on the advisor's experience, reputation, and the complexity of the client’s requirements. But according to money.com “the range tends to land between $200 and $500 per hour.”

Pro Tip: To make the most of hourly rates, advisors should ensure their value proposition is clear and easily understandable. Maintain detailed records of hours spent and provide transparent invoices to reinforce trust and ensure clients feel confident about the value they are receiving.

Subscription Model

Embracing a subscription-based model can provide financial advisors with a steady and predictable income stream.

Statement of Fact: As the subscription economy thrives in various industries, financial advisors have recognized the potential of this model in their practice (Wealthtender).

Example: Clients sign up for a monthly retainer which is typically an upfront one-time fee, and in return, they get your financial wizardry on demand. Exclusive perks, market insights, and portfolio reviews -  they're hooked, and so is your cash register. 

Tip: To harness the power of the subscription model, advisors must prioritize delivering consistent value and relevant content to subscribers. Offering exclusive perks and benefits can incentivize clients to choose the subscription option over other fee structures. Additionally, nurturing strong client relationships and providing personalized support will help advisors retain subscribers and foster loyalty.

Assets Under Management (AUM) Fees

The AUM model is a widely-used fee structure in the financial advisory industry, where advisors charge a percentage of the total assets they manage for a client.

So, how much should you look forward to making as AUM fees?

The size of the assets under management can influence the fee percentage. It's like a sliding scale - the more substantial the assets, the smaller the percentage tends to be.

However, the median AUM fee hovers around 1% of the assets they manage annually.

For instance: An advisor managing a client's investment portfolio worth $1 million and charging a 1% AUM fee will make  #10,000.

Tip: To thrive under the AUM model, advisors must focus on achieving solid investment returns and growing their clients' wealth. Providing regular performance reports and showing value in managing assets can help justify the AUM fee to clients. Additionally, targeting clients with significant assets can lead to more substantial AUM fees and, consequently, a thriving practice.

Flat Retainer Fee

Stability and prosperity, all wrapped up in a neat little package called the flat retainer fee. With a flat fee, advisors charge a one-time fixed amount for a specific set of services, usually on a monthly or annual basis.

Tip: To excel with a flat retainer fee, advisors should create service packages that cater to specific client needs. Clear communication of the services included in the retainer will ensure clients understand the value they receive. Offering flexible payment options and delivering exceptional service will encourage clients to commit to long-term retainer agreements, leading to a more stable and profitable practice.

In Conclusion

The key to building a million-dollar practice is simple - get in front of quality prospects, and hone your objection-free selling skills. Speaking of which…

Prospect Up To Individuals That Make The Money You Want To Make

The Taylor Method - an avant-garde sales training program teaches advisors how to develop a winning mindset, top-notch prospecting skills, and the language prowess to attract and close high-net-worth individuals. Remember, in this industry, there's a profound truth to behold: you will make as much money as your clients make. 

With the Taylor Method, you'll learn to identify and engage with high-net-worth prospects seamlessly. Our tried-and-tested techniques will empower you to cultivate relationships that stand the test of time, converting potential clients into lifelong advocates of your financial prowess.

Join the Taylor Method today. And put an end to your money problems!