How Do Financial Advisors Make Money

At Lillian Purge, we specialise in SEO for financial advisors, helping firms attract the right clients and grow their online visibility. Many people looking for professional financial advice often wonder how financial advisors actually make money. Understanding how advisors earn their income builds trust and helps clients make informed decisions about which type of service suits them best.

The Main Ways Financial Advisors Earn Income

Financial advisors can be paid in several ways, depending on their business model, regulatory permissions, and client preferences. The three main methods are fees, commissions, and a combination of both.

Each approach has its advantages and can be suitable for different client circumstances, but transparency is key. Clients should always know exactly how their advisor is being compensated before engaging in any financial plan or investment service.

1. Fee-Based Income

Fee-based advice has become the standard in the UK since the Financial Conduct Authority (FCA) banned commission payments on investment products in 2013. This move increased transparency and ensured that advisors put client interests first.

Under this model, clients pay the advisor directly for their time, expertise, and ongoing service.

There are three main types of fee-based income:

a) Percentage of Assets Under Management (AUM)

Many financial advisors charge a percentage of the client’s total assets they manage. This fee is typically between 0.5% and 1% per year.

For example, if an advisor manages a £250,000 portfolio and charges 1%, they would earn £2,500 annually for overseeing and maintaining the investments.

This structure aligns the advisor’s success with the client’s financial growth, as both benefit from the portfolio performing well.

b) Fixed or Flat Fees

Some advisors charge a set amount for specific services such as financial planning, pension reviews, or inheritance tax consultations.

For instance, a comprehensive financial plan might cost £1,500, while an investment review could be £750. Flat fees provide cost certainty for clients and allow advisors to separate charges for one-off tasks from ongoing services.

c) Hourly Rates

Financial advisors may also charge by the hour, especially for limited or one-time advice. Typical rates range from £150 to £350 per hour, depending on the advisor’s qualifications and location.

This approach suits clients who want advice on a single issue—such as consolidating pensions or reviewing insurance—without entering into a long-term agreement.

2. Commission-Based Income

While commissions on investment products were banned for independent financial advisors (IFAs), they still exist in some areas such as protection products, mortgages, and general insurance.

In these cases, the product provider pays the advisor a commission when a client purchases a policy or service.

Examples include:

• Life insurance and critical illness cover

• Income protection or mortgage insurance

• Mortgage broking or remortgaging services

For example, an advisor arranging a £200,000 mortgage may receive a small percentage from the lender as a commission. Similarly, an insurance policy sale might pay an upfront or ongoing commission for as long as the policy remains active.

Although this system can reduce upfront costs for clients, it’s important that advisors remain transparent about commissions and ensure their recommendations are driven by suitability, not financial incentive.

3. Hybrid Models

Many financial advisors combine fee-based and commission-based income, particularly when offering a broad range of services.

For example, a firm might charge ongoing fees for investment management but receive commission for arranging life insurance or mortgages. This hybrid structure can provide flexibility and affordability for clients while maintaining ethical standards.

The key is clear communication. Clients should always understand how each product or service contributes to the advisor’s overall income.

4. Retainers and Subscription Models

Some modern advisory firms are introducing retainer-style payment options. Clients pay a monthly or annual subscription to access ongoing advice, regular reviews, and financial coaching.

Typical retainer fees range from £100 to £300 per month depending on service level and client complexity.

This model appeals to clients seeking a more personal relationship and continuous support rather than ad-hoc advice. It also provides advisors with a predictable, recurring revenue stream.

5. Referral Partnerships

Occasionally, financial advisors earn additional income by referring clients to trusted professionals, such as mortgage brokers, accountants, or solicitors.

These referral fees or reciprocal arrangements must comply with FCA regulations and be disclosed to the client. While not a major income source for most advisors, they can complement the overall service offering and strengthen client relationships.

What Influences How Advisors Charge

Several factors determine how a financial advisor structures their income:

• Client type: High-net-worth individuals may prefer percentage-based fees, while smaller investors may opt for fixed or hourly pricing.

• Services offered: Comprehensive financial planning requires more time and analysis than one-off product advice.

• Regulatory framework: FCA regulations define how certain products can be sold and how advisors must disclose fees.

• Business model: Independent advisors (IFAs) often use transparent fee structures, while restricted advisors working for larger firms may operate differently.

Why Transparency Is So Important

In financial services, trust is everything. Clients must understand how their advisor earns money to feel confident that recommendations are made in their best interests.

The FCA requires all financial advisors to disclose fees clearly in writing before starting any work. This includes outlining what services are included, how the fee is calculated, and when it is payable.

Transparent pricing also helps clients compare advisors on value rather than just cost. Two advisors may charge similar fees but deliver very different levels of service and expertise.

How Financial Advisors Add Value Beyond Their Fees

While understanding how advisors make money is important, clients should also consider what they receive in return. A good financial advisor provides:

• Clear financial planning tailored to personal goals

• Investment management aligned with risk tolerance

• Regular portfolio reviews and rebalancing

• Tax efficiency and estate planning guidance

• Peace of mind through professional oversight

The best advisors help clients avoid costly mistakes, make informed choices, and stay on track through changing market conditions.

Expert Advice for Financial Advisors

1. Be completely transparent about how you earn income.

2. Explain your pricing structure in plain language during consultations.

3. Offer multiple options so clients can choose the payment model that suits them best.

4. Review your fees regularly to ensure they reflect the value of your service.

5. Use your website to clearly display how you charge to build trust before clients make contact.

Final Thoughts

Financial advisors make money through a mix of fees, commissions, and ongoing service arrangements, depending on the nature of their work. Regardless of the model used, honesty and clarity are essential. Clients who understand how their advisor is compensated are more likely to develop long-term, trusting relationships.

At Lillian Purge, we help financial advisors build visibility and trust online through clear messaging, SEO, and content strategies that highlight their expertise and professionalism.

If you want to attract more high-quality clients and strengthen your digital presence, get in touch today.

We’ve also written about are financial advisors worth it and how do financial advisors find clients. You’ll find more guidance in our Financial Advisors Hub.