How is your advisor compensated?

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Like any other professional service, financial advice has a cost.  This is not debatable.  Contrary to what people may think, good financial advice is not free.  Before asking yourself, “how much are my fees?”, a more appropriate question is, “how is my financial advisor compensated?”

The most common compensation models that financial advisors employ are fee-based and commission-based.  Simply put, fee-based advisors are paid directly by their clients while commission-based advisors are paid directly by the investment fund companies.  In an advice-centric industry, the commission-based compensation model is flawed.  Clients are entitled to objective, unbiased advice.  Objectivity is not guaranteed when advice-providers are paid by the company whose product they recommend.

This flaw has been exposed, causing a world-wide review of the financial services industry and how advisors should be compensated.  In Australia, reforms such as the “Ban on Conflicted Remuneration Structures” have been implemented to eliminate potentially biased advice.  In the UK, the “Retail Distribution Review” dictates that fees for financial advice are to be paid by the client, to the advisor.  More and more countries (Canada included) are in the stages of implementing the same rules to reform financial advisor compensation.

At The McClelland Financial Group, we have stayed ahead of the curve.  Since 2004, we have been transitioning our clients from commission-based accounts to fee-based accounts, not in anticipation of the changes inevitably to come, but because it is the fairest way to be compensated for providing financial advice.

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