Which is best for you - Fee or Commission based financial advice? 

As with any goods or services, somewhere along the line you will pay for them - financial advice is no different. Your financial adviser should make it clear to you that you can decide how to pay for any advice/services you receive. The options are commission based, fee based or a combination of the 2. 

Commission based financial advice 

Here your adviser is only paid when a financial product has been implemented. So if no new financial product is taken out, your adviser has taken on the risk of not being paid for the work involved and advice given.  As a result, commissions paid to your adviser can be higher than the fees paid. Commissions paid on products between different providers are now more or less the same, so the risk of an adviser picking one product simply on the grounds that it pays more commission than another is less likely. 

The advantages of Commission based advice are:- 

• It suits you if you like the advice costs to be absorbed within the transaction.
• It suits you if you do not want to be sent a bill if you decide not to follow the advice given.
• If you are undertaking a small financial transaction you tend to benefit from the commission route as the commissions may well be lower than the fee’s your adviser would have charged.

The disadvantages of Commission based advice are:- 

• You may not be able to get advice in areas where commissions are low or are not available.

Fee based financial advice 

Where you choose to pay by fee, your adviser will work either on a pre agreed hourly rate or fixed fee basis. You can agree to pay the fee up front or at pre agreed stages in the advice process.  Payment for financial advice is not directly linked to a new product being recommended or implemented. Should a financial product be required any commissions that may have been payable to your adviser will either be, used to offset the cost of any agreed fee, rebated to you or put back into the financial product to improve its terms.  

The advantages of Fee based advice are:- 

• Advice is not restricted to those areas where your adviser would be paid a commission.
• Any potential commission bias on your adviser’s part is removed.   
• If you are undertaking a large transaction, you often benefit as fees tend to be lower than commissions on such cases.
• If you have elected for any commission to be put back into the financial product(s) you will ultimately receive higher returns.

The disadvantages of Fee based advice are:- 

• The agreed fees are payable regardless of you following the advice received.
• Fee based advice is generally more expensive if you are conducting smaller transactions.

The truth is, it has always been - “horses for courses”. Commission based advice may be more appropriate for you on one occasion, fee based advice on another. You should ask your adviser to help you decide which one to adopt.