How Are Financial Planners Compensated?
The two primary ways financial planners are compensated are through salaries and commission. Let's take a look at how these differ.
Salary
A salary is a set payment that you’ll receive on a regular basis, such as weekly, semi-monthly or monthly, regardless of your performance. Many financial companies hire financial planners as employees who work on behalf of the company and receive salaries, incentive compensation and benefits.
Payouts
A payout is a percentage of the revenue you generate. Some companies use this payment method because it rewards productivity and business development success.
Which method is better?
That depends a lot on the stage of your career. In the early years when financial planning professionals are still establishing their reputations and client base, income via payouts may be quite low, so a salary may provide higher income and more stability.
However, in the long run, financial planners can often achieve much higher levels of income though the payout method in the mature stages of their careers than they could with a salary.
If you’re just starting out in your career, the good news is that most companies offer some period of time where compensation for new advisors is guaranteed through salaries. In companies using the payout method, this period tends to be short (one to three years) and can vary by firm. In salary-based companies, guaranteed compensation is the norm for rookie and seasoned professionals alike.