How are financial planners compensated?
There are two main sources of income for financial planners. First are the fees charged clients for services. Second are the commissions given by companies (insurance, some mutual funds, etc.) whose products are purchased for clients. It is very common for a planner to get revenue from both sources. A financial planner who collects commissions is open to the criticism that she has an incentive to select or recommend investments partly on the basis of the commission offerednot solely on the quality of the investment. While competence and performance should be the primary considerations in selecting a planner, compensation should also be consideredespecially in cases where commissions are involved. For example, financial planners compensated solely by commissions may tell you that their services will not cost you money. However, they might choose investments with higher administrative costs or lower returns in comparison to investments that do not pay commissions. If so, the planner’s se
