how do financial advisors make their money?

they make their money managing money for others. for financial planners and advisors, especially for families, they make a certain percentage point off the sale, or charge for their service and take a lesser percentage point. we are a far cry from hedge fund managers as well as investment specialists that directly manage the money. a planner will invest into funds, segregated funds and bonds which are managed by professional companies. an update every year is recommended. most successful financial planners work 3-4 days a week, have a secretary that takes care of all the office business and have between 1000-5000 clients.

why do the planners continue working? well, everything boils down to the sales volume of the client base that you have. for example, let's say my block of 1000 clients generates 20000$ in renewals every year. so every year, i would receive these renewals, plus the commissions on any new business that ive generated that year. having a financial planning practice is like having any other practice. the quality and quantity of the clients make up your salary. most planners try to get to the point where most of their salary comes from renewals and investments, since renewals on investments are the rest of the life of the investment where as the renewals from insurances lasts between 10-20 years. Some american companies still allow lifelong renewals.

on the other hand, investment specialists are people who have a stock broking license and would directly invest your money into some stocks. there are always minimus to invest this way, between a 150000$ to 500000$ total. also, they can ask that these investments are out of RRSP or the 401(k) plans. this type of specialist would get a management fee on the investment, normally between 1% and 4% on the total volume that you invested.

just to give you an idea, for a planner to make 100000$, he or she would have to sell for around 60000$ worth of insurance premiums and investment commissions. when you calculate that the average premium per policy is, let's say 800$, that's about 75 policies, which is about 1.5 per week. the downside of this is that your revenue is directly tied to your sales. if you have a few weeks without sales, well there is no money coming your way. its a delicate balance. some people prefer the security of a regular paycheck, others prefer to be paid for what they work for.

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2 Responses to “how do financial advisors make their money?”

  1. 1 Abhay June 19, 2010 at 17:11

    My friend suggest me that i do life insurance adivisory. She told me that it has unlimited earning potential. well how do i reach coustmers. what should i say to them to buy the policy .

    • 2 range June 19, 2010 at 19:25

      Insurance is a scam. You’re basically selling something that isn’t palpable to clients, you need to create a need while you talk with them. I usually had my secretary or cold callers set up appointments. Usually, companies will have a set script that you follow. You need to learn it and deliver it.

      Anyway, I’m glad I’m not doing it anymore. Financial management is a lot more interesting, but honestly, my own money is in GICs and compound interest savings accounts.

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