|1. Sales charges|
For a, b and c, the fund provider pays the dealer a percentage of what you invest (in scenario a, you and your advisor determine the rate; in b, it’s usually 5%; and 2.5% in c).
|2. Fund expenses*||3. Other fees|
Stocks & bonds
flat fee on total assets
asset-class fee (usually equities cost more to trade than fixed income)
transaction fee per trade
(the larger the trade, often the lower the fee)
|1. Fund expenses*||2. Other fees|
*These are not paid directly. They reduce the fund’s return.
Other ways advisors get paid
Life, term and living-benefits insurance
For Whole or Universal Life, an advisor typically gets 50% commission on the first-year premium (see “Typical first-year rates,” below), plus a bonus (usually 150% of commission), for a total rate of 125% on the first-year premium.
Commissions typically drop off dramatically to just 5% in years two and three, and 2% thereafter (some policies pay no commission after year 5 or 10). This drop is common across all types of insurance. (Note: CI policies tend to bump up commissions in renewal years.)
The chart illustrates the relationship between commission percentage and policy length, based on the example above:
Those percentages are higher than mutual fund MERs, but service requirements are higher. You’ll get:
Non-cash compensation may include:
Further fee details
After the first year, some companies pay periodic service fees to active agents. If the agent isn’t doing any work, he may forfeit.
Some companies have contracts with agents so they receive commissions for life. If agents decide not to serve clients, the MGA may have to take on the service burden.
Typical first-year insurance commission rates
More for advisors
Newlink Group director Byren Innes has prepared a dynamic spreadsheet where you can enter your actual commission schedule and premiums so clients can see how much they pay you in dollars.
Melissa Shin is the managing editor of Advisor Group.