How a financial advisor is paid shapes the conversation you’ll have with them, whether or not it’s ever mentioned out loud. Understanding the difference between fee-based and commission compensation is one of the most useful things you can know before choosing — or re-evaluating — an advisor.
How commission-based compensation works
A commission-based advisor is typically paid by the companies whose products they sell — a percentage of the premium on an insurance policy, or a percentage built into an investment product. You generally don’t write them a direct bill; the cost is embedded in what you buy. This model works fine in plenty of cases, but it also means the advisor’s compensation is tied to a specific transaction happening, which is worth being aware of when a recommendation coincides closely with a new product purchase.
How fee-based compensation works
A fee-based advisor is generally paid directly by the client — as a percentage of assets managed, a flat planning fee, or an hourly rate — rather than through product commissions. The idea is that compensation is tied to the advice and ongoing management relationship rather than to any single product sale, which can reduce (though not necessarily eliminate) the incentive to recommend a particular product over another.
Where conflicts of interest can show up in either model
- In a commission model: a recommendation that happens to pay a higher commission, or pressure to act quickly on a decision tied to a product sale.
- In a fee-based model: an incentive to keep more assets under management (which can occasionally discourage advice like paying down debt or investing outside the managed account), or a percentage-of-assets fee that doesn’t scale down even as the portfolio grows into a large sum.
- In both models: infrequent communication once a sale or the initial plan is complete, or a plan that isn’t revisited as your situation changes.
Questions worth asking any advisor about how they’re paid
- How exactly are you compensated on the products or services you’re recommending to me?
- Do you receive a different amount of compensation depending on which product or provider I choose?
- What would this cost me if I didn’t take your specific recommendation?
- Can you show me this in writing, not just describe it verbally?
How we’re compensated
We operate on a fee-based model — we believe it’s the clearer way to structure the relationship, since our compensation isn’t tied to any single product recommendation. That said, fee-based isn’t automatically “better” for every client in every situation, and being transparent about how any advisor, including us, is paid is the more useful habit than assuming one model is universally superior.
Where this fits into your broader plan
Compensation structure is one input into choosing an advisor, alongside their experience with your specific situation (see our article on choosing a financial planner as an incorporated professional) and what their fees or commissions actually add up to for someone in your position (see our article on what a financial planner costs in Calgary). Asking directly, and getting a clear answer in writing, is worth doing before you commit to working with anyone.
If you’d like to see exactly how we’re compensated and whether our approach fits what you’re looking for, a free, no-obligation consultation is a good place to start. Book a time here, or read more about financial planning for doctors and incorporated professionals and financial planning for dentists across Canada.
This article is for general educational purposes and does not constitute personalized financial advice. Compensation structures and disclosure requirements vary by advisor and firm — ask any advisor you’re considering to explain their specific compensation in writing.
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