Generally, financial advisors are paid either by charging fees or earning commissions.
- Commission-Only - Advisors earn their income by selling financial products such as insurance or mutual funds, or may also earn a fee for trades that they execute.
- Fee-Only Advisors - Earn income by charging fees. Some common methods include an hourly rate, an annual or retainer fee or as a percentage of investments under management.
- Fee-Based - Advisors earn their income using a combination of fees and commissions. Some sales folks use this term to try and hide the commission aspect from you.
It may seem like semantics to you, but we believe it is very important to know what you are paying and how. Some advisors may not tell you what the fees you are paying unless you ask. Be sure to find out about the fees, sales charges, loads, commissions or any other costs you may incur before signing up.
Sometimes compensation methods may not be as obvious as they should be, so we look to clarify these things.
- Loads - A “load” is another term for a sales charge. If you are buying an A-share there is an up-front sales charge of usually around 5%, but can be as much as 8%. A B-share does not have an up-front charge, but requires you to own the fund for a certain period of time, typically 5 to 7 years. If you wish to sell the fund before then, you will pay a charge at that time. At Jersey Shore Financial Advisors, LLC, we recommend “no-load” mutual funds to eliminate these charges.
- Management Expense Ratio (MER) - The expense ratio is the percentage of the total fund assets that are used to cover expenses. These include management fees, which are paid to the fund manager, and operating expenses.
- 12b-1 Fees - These are additional marketing and distribution fees that are charged to you by a fund. These are included in the calculation of expense ratio and sometimes called a “hidden load.” Often, a portion of these fees is used to compensate financial advisors, so your funds may be helping to pay an advisor to market. Does this make sense to you!? Us neither.
As part of our planning process, we will analyze the cost of your current investment program and make a recommendation keeping in mind your goals, objectives tolerance for risk, etc.
Be wary of advisors who claim their services are “free.” I don’t know of anyone who can work “free.” It’s more likely they are being paid in other ways, without specifically explaining that to you and potentially in ways that may not be best for your personal financial goals.
Jersey Shore Financial Advisors LLC fee schedule
With us, you will always know what you are paying for.