Advisers receive remuneration in two ways: fees for services rendered and commission paid to them on products they recommend. For years there has been a debate about which is best for the investor and there is no clear-cut answer.

There is a belief held by many members of the general public that commission-based advisers will recommend only those products on which they make the highest commission and thus will not make impartial recommendations.

This is just as valid as suggesting that your mechanic will replace parts unnecessarily when your car breaks down, or to believe that your dentist will drill holes in good teeth and fill them again to boost up your dental costs. If the people you deal with are dishonest, and let’s face it every occupation has its black sheep, you are not safe anywhere. If a fee-based adviser inflates the hours to be charged for, or if a commission-based adviser recommends only high commission products, he is dishonest. It is impossible to build a business on dishonesty and no adviser, fee-based or commissioned-based, will act in a dishonest fashion if he is serious about building up a profitable and long-standing organisation which is highly regarded in the community. The best business comes from referrals from satisfied clients because, if it doesn’t, every day is your first day in business.

Funds Investing

Establish at the start of your enquiry whether your adviser is fee-based or commission-based and you will know where you stand. Most advisers will charge an initial consultation fee of between $50 and $150, and this is often followed by an additional fee of a similar amount to prepare a detailed report suggesting a portfolio of investments for you. Many advisers who are commission-based refund the portfolio fee if you proceed with the recommended investments.

Some financial advisers will charge an initial interview fee. This covers their time spent on those common situations whereby they give you guidance but you do not invest any funds with them. This may be because you have no money to invest at the time of the interview or because the investment plan you have does not need changing. By charging a fee they are paid for their expertise even though there has been no investment. Be very wary of anybody offering everything free — they receive nothing at all until they have SOLD you something.

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