Question

Erika would like to hire a financial advisor. The financial advisor that she has been considering indicated that she would charge $2,500 to write a financial plan and 1% of any asset she manages. The financial advisor that Erika is considering is using what type of compensation model?

A. Fee-offset.

B. Fee-only.

C. Commission.

D. Fee-based.

Answer 1

Type of comensation model used is D. Fee based

Explanation :-

Let us first discuss about each of compensation model :-

A. Fee Offset -->

This means that the firm charges a fee to develop a comprehensive financial plan to meet your overall planning goals. This fee ensures you that your financial plan is designed around your needs, not around the commission income needs of your financial planner. In this there can be fee reduction and along with that commision is paid.

​​​​​​B. Fee only -->

Client pays a fee based on (a) assets under management, (b) hourly charge, (c) retainer, or (d) some combination.

C. Commission -->

Client pays a percentage of the amount of product purchased.

D. Fee based -->

Fee-based advisors are one of the most common types of financial professionals. Fee-based consulting has become famous nowadays. With fee-based consultant, customers pay a percentage of fee-based on the assets of their accounts or a fixed fee for their financial guidance. The charges can be negotiated between the client and consultant and it covers all types of assistance offered to the investor. In this fixed charge and percentage of asset manage, both can be there.

By analysing all the explanations above, it is clear that it is Fee based commission type. As both fixed fee and percentage of asset manage are there. It can be fee offset if there is any fixed fee reduction and along with that commision is paid for that negotiation. In this question no such thing is mentioned so this is fee based.