Fee-Based Investments: Understanding How Financial Advisors Get Paid

A fee-based investment is an account in which a financial adviser is paid based on a fixed percentage of a client's assets. This is opposed to a commission-based investment in which a financial adviser earns money based on the amount of trades or assets that were sold to the client.

A fee-based investment is handled by the client under the guide of a financial planner. The client tends to pay more for this type of investment, since the fee paid to the adviser is based on the net worth of the client rather than on a percentage of products sold to the client.

For example, if a client has a portfolio worth $250,000 and the fee-based adviser earns a set 9 percent, she will earn $22,500. If the adviser helps the client increase his worth to $350,000, she would then earn $31,500. If the account was commission-based only, the adviser would earn based on the amount of the stocks, bonds, mutual funds and annuities sold to the client.