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Understanding How Your Financial Advisor Gets Paid

Knowing how your financial advisor is compensated is crucial to ensuring you're receiving unbiased advice. Commissioned advisors earn income through transactions, which can create a bias towards activity-based recommendations. Conversely, fee-based advisors may charge management fees but can also earn commissions from the products they sell, leading to potential conflicts of interest. On the other hand, fee-only advisors are compensated solely for their advice and ongoing management, aligning their interests with yours. Understanding these compensation structures empowers you to choose the right advisor.

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Understanding How Your Financial Advisor Gets Paid

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  1. How Does Your Advisor Get Paid? 1. Commissioned Financial benefit can only be derived through transactions, creating a bias toward account activity. Unbiased advice is an improbable outcome. Commissioned representatives can receive incentives for selling one investment over another.

  2. How Does Your Advisor Get Paid? 2. Fee-Based May earn part from management fees, but also may receive compensation for commissioned-based products they are licensed to sell Conflicted and not held to a fiduciary standard

  3. How Does Your Advisor Get Paid? 3. Fee Only Paid for Advice and Ongoing Management

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