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Creating an alliance through compensation

How you pay your advisor can bring you closer together

There are three primary ways to compensate your advisor. Entitled, fee-only, commission-only, and fee-based, respectively, the differences between these compensation schemes has significant bearing on your advisor’s motivation. Let’s sort them out.

Fee-only

When an advisor is fee-only, they receive compensation solely from their clients. It doesn’t matter how many transactions occur or what funds are selected, the advisor cannot be paid by a non-client party. Being fee-only is uncommon in the financial advice world because it often makes client relationships less profitable. Skyline advisors are fee-only, without exception.

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Commission-only

This sort of compensation arrangement is familiar to most people, as it is the scheme under which salesmen typically operate. Money is made when a product is sold. Not shockingly, hiring a commission-only advisor will lead to more buy/sell discussions than you would find otherwise. Naturally, there are very few commission-only and fiduciary, financial advisors.

Fee-based

An advisor is fee-based when they take compensation from both their clients and from product sales. Essentially this label is a mix of the two previous labels. Fee-based advisors are subject to disclosure rules, but that doesn’t always make it easy to parse out where their loyalties lie. Why choose an advisor with potentially polluted interests?

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