Advisor Fee or Commission: Which Is Best for You?

As an investor, you will have the choice of choosing between a broker that charges an advisor fee or one that charges a commission. Both of these pay structures could benefit you depending on your situation. Here are a few things to consider about whether the advisor fee or commission is better for you.

Frequent Purchases

Many investors frequently buy and sell securities with their broker. If this is the case, you might want to avoid a broker that charges a commission. If you have a broker that charges a commission, you are going to pay them a certain amount every time you want to make a trade. This means that you are going to cut into the amount of profit that can be generated from your trading. You will have to perform that much better on every trade in order to make up the difference. If you worked with a broker that simply charges you a flat hourly rate, you can make as many trades as you want without worrying about the costs cutting into your profit. 

Long-Term Investor

If you are more of a long-term investor, you might be better served by a broker that charges a commission. If you are the type of person that purchases a security and hangs onto it for multiple years, the commission is not going to hurt you. If you used a broker that charges an advisor fee, they might collect a certain percentage of your account balance every year. Therefore, if you do not trade frequently, it might be in your best interest to go with a commissioned broker.

Unbiased Advice

If you are looking for unbiased advice from your broker, you might want to consider going with a broker that charges an advisor fee. They will be much more likely to give you advice that makes sense for you instead of for them. With brokers that are in a commission, they have the tendency to steer you towards investments that pay the highest commission for them. For example, they will point you towards a mutual fund that gives them the biggest kickback. This mutual fund may not necessarily be the best investment for your needs. With a broker that charges an advisor fee, they are going to see what is in your best interest.

Service

These two types of brokers generally provide different levels of service as well. If you are working with a broker that earns commission, they are only going to be concerned with how frequently you trade. When you trade, this is the only way that they can earn a living. With a broker that charges an advisor fee, they do not have to convince you to trade to earn a living. They are more interested in helping you grow your account if they earn a certain percentage of the account balance. It is in their best interest to help you in any way that they can.

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