How Your Advisor Gets Paid Could Cost You More Than You Think

When you sit down with a financial advisor, you want someone you can trust - someone who’s knowledgeable, but also firmly on your side. The challenge? Not every advisor’s paycheck is aligned with your best interests. In fact, the way an advisor gets paid can shape the guidance you receive. For retirees, that can mean the difference between peace of mind and second-guessing every recommendation.

Understanding Different Compensation Models - advisors generally work under three compensation models:

1. Commission Model. Advisors earn commissions on products they sell. That means their paycheck can depend on which investment or insurance they recommend. Even with good intentions, that can create conflicts of interest.
2. Commission + Fees. These advisors charge fees for planning but may also earn commissions. While more balanced, there can still be pressure to sell products.
3. Fee-Only Model. Fee-only financial planners receive compensation only from their clients - not from commissions. This structure puts the focus on advice, not sales, and helps reduce conflicts of interest.

Why Fiduciary Duty Matters in Retirement - Fee-only advisors are fiduciaries, which means they are legally obligated to put your best interests first. Retirees can take comfort knowing recommendations are designed to support their financial plan - not an advisor’s commission goals.

Focused on Advice, Not Products - Because fee-only planners don’t earn from selling financial products, they can devote more time to understanding your personal retirement picture. That often leads to more personalized strategies, whether it’s planning income streams, reviewing taxes, or managing investments with your lifestyle in mind.

⭐ 5-Star Tip: Before hiring an advisor, ask this simple question: “Do you ever receive a commission if I choose one investment or financial product over another?” The answer will tell you a lot about potential conflicts of interest.

Clarity in Compensation - With fee-only advice, you know exactly what you’re paying for. Fees might be based on assets under management, a flat fee, or an hourly arrangement. The key is that you see it clearly up front, with no hidden sales incentives shaping the advice.

Finding the Right Fee-Only Planner - If you decide fee-only is right for you, look for advisors with respected credentials (such as the CFP® designation), clear fee schedules, and a fiduciary oath. While fiduciary duty is a legal obligation for fee-only advisors, not all advisors make that commitment explicit. Some professional networks require their members to sign a fiduciary oath — a written pledge to put client interests ahead of their own. Asking an advisor whether they’ve signed such an oath is a simple way to confirm their commitment. Also be sure to ask about their experience with retirement planning and make sure their approach feels like a fit.

The Wrap-Up - at the end of the day, the way an advisor is paid matters - not just for transparency, but for your peace of mind in retirement.

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