The Truth About Advisor Compensation

We all agree financial professionals should get paid for their work. But our industry is torn over how we get paid.

It’s a long-standing question: Is it better consumer value for advisors to be paid through commission on the products they sell, or through fees on the funds they manage?

With the recent DOL regulations and increasing regulatory scrutiny, the question is growing in prominence.

We won’t rehash the debate today, but we will share an interesting insight we’ve had here at Stonewood.

One of our members recently sold an IUL policy to a 43-year old client of his. The IUL policy paid the advisor a commission of around $14,000.

We got to wondering… what would the advisor make if he managed that money in an IRA for the client instead? So we did a quick calculation. Assuming the advisors charged 1% on the funds, and the client lived to age 90, the approximate advisor revenue from a managed account would have been…

$170,000

Pretty astonishing, right?

Here’s the bottom line: There are situations where a client is better served by IUL, and situations where a client is better served by a managed account. And when an advisor acts in the best interest of his client, that advisors has earned payment for his work either way.

But the old belief that commissions are the richest compensation? That certainly belongs in the dustbin of outdated assumptions.