From the course: Financial Planning and Wealth Management Fundamentals

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Compensation for wealth managers

Compensation for wealth managers

From the course: Financial Planning and Wealth Management Fundamentals

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Compensation for wealth managers

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And now let's turn to the compensation structure for IAs. So on the account setup and compensation side, things work a little differently at wealth management firms than they do at financial planning firms. So oftentimes, investment advisors have the option of setting up their clients with commission-based accounts or fee-based accounts. In a commission-based account, IAs don't charge their clients a monthly service fee, but instead charge a commission per trade, which is either a flat amount or is a percentage of the notional size of the trade. So for fixed income or foreign exchange trades, these are called spreads. In commission-based accounts that contain mutual funds, those mutual funds often pay something called a trailer, which is a monthly commission fee that the client pays as part of their mutual fund management costs that go directly to the advisor. Now, historically, commission-based accounts were the only type of account available at wealth management firms, but in recent…

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