Understanding A Commission-Based Structure

Commission-based careers are not for the faint of heart.

And for financial advisors, compensation models are a crucial aspect of the trajectory of your career.

One prevalent compensation structure for financial advisors is the commission-based model. In this article, we will delve into what a commission-based structure entails, its potential implications for financial advisors, other compensation models to explore, and how advisors can make informed decisions regarding their career path.

 

What Does A Commission-Based Structure Look Like As A Financial Advisor?

The commission-based model is the first compensation model introduced in this industry. The simplest industry-wide definition of a commission is a payment that someone makes on a sale. 

As a financial advisor, a commission-based structure is a compensation model where financial advisors earn income by receiving commissions on the financial products or services they sell to clients. These commissions are typically calculated as a percentage of the total investment amount or premium paid by the client.

When you earn income based on a sale to your clients, that oftentimes leads to a transactional practice. 

Why’s that?

Because being a transactional vs. a consultative financial advisor likely means feeling more pressure to push products and product sales to earn your desired income. Other implications with a commission structure might include:

• Potential conflicts of interest
• Limited product selection
• Income volatility

 

Advisors at Consolidated Planning prioritize

people

over

money.

 

The terms of these commissions are often unclear to clients on how exactly they are paying their advisor or how their advisor is making money by working with them. As a commission-based advisor, you are incentivized on certain products, meaning you can potentially earn more by recommending a specific product that might not be right for your client.

 

This is NOT

 

people

over

Money.

 

What Are Other Ways Financial Advisors Can Earn A Salary?

Since there are other ways to earn your income as a financial advisor, it literally pays to do your due diligence in choosing the right firm for you. A shift to an alternate compensation structure can help to reduce conflicts of interest and better align your actions with what is truly best for your clients and their unique situation.

 

#1 Base Salary

With a base salary, you are likely an employee of the firm rather than an independent contractor. Now, this doesn’t mean that you can’t and won’t earn incentives in addition to the salary but your base salary is guaranteed and agreed upon. These incentives might include:

• Meeting sales targets
• Acquiring new clients, and
• Retaining existing clients

However, this agreed upon salary means you’re forgoing future income opportunities for a guaranteed income today. And in a position that typically has an unlimited income potential, accepting a base salary position as a financial advisor does not give you this unlimited income potential.

 

#2 Salary Advance

With a salary advance, you can expect consistent income, each and every month. But throughout the timeline of your pay, there will be certain earnings requirements to continue to receive that advance. 

While this initially sounds like a base salary, it is not. A salary advance allows you to earn above and beyond your agreed upon “salary” each month.

For example, let’s say that you’re a new advisor at Consolidated Planning. Prior to day one with us, you selected the salary of $5,000/month based on the expectations and what you’re comfortable with. You would then receive $2,500 on the 15th of the month and $2,500 on the 30th of the month for consistent cash flow. This salary advance means:

• If you’ve earned more in fees during the payroll cycle than what we’ve paid you in your salary advance, then you receive the excess. 
• At the end of your first twelve months, your salary advance earnings should, at a minimum, align with your earnings. Ideally, your total earnings are greater than your total advances. Anything above and beyond that will be paid to you.

So while a salary advance is an agreed upon monthly income, you won’t be limiting yourself like with a base salary option.

 

#3 Fee-Only

A fee-only financial advisor is largely compensated for plan implementation, ongoing management and their most valuable asset…their advice.

Afterall, almost anyone can simply sell their clients investments or insurance. But a fee-only advisor is focused on addressing both sides of the balance sheet, and encouraging collaboration with their client, all for true balance in a client’s financial world.

Integrated and coordinated.

Determining your fees for a fee-only compensation model isn’t a one-size fits all approach. You have a few options for charging fees, including:

• Flat fee
• Hourly fee, and
• Subscription-based fee

Fee-only advisors are quickly becoming the industry standard and for good reason:

• Provides clarity and transparency around costs
• Removes any conflict of interest
• Heavily advice-driven

This transparency and clarity here can help advance the client-advisor relationship by building the necessary trust for a long-term relationship.

 

Which Compensation Structure Is Right For Your Career?

Each compensation structure available to you offers its own opportunities and challenges and can affect the trajectory of your career.

But, with an ever-evolving landscape, it’s important to always stay in the loop on compensation models so you can ensure you’re delivering a high level of customer service while adequately achieving your client’s goals.

Regardless of which compensation structure is right for you, financial advisors have a fiduciary responsibility to act in their clients’ best interest. And, well, if you let a commission-based structure deter you from that, maybe being a financial advisor isn’t the right path for you.

For more insights on how a salary advance works, start the conversation with our team about what our interview process looks like and how we help you set yourself up for success.

 

2023-161724 Exp. 9/2025