Types of Compensation Agreements
Percentage of assets under management: Based on size of the portfolio.
Fixed fees: A set amount for a defined service, such as creating a financial plan;
Hourly charges: For a special project or ongoing consulting;
Commissions: Additional compensation earned when a purchase or a trade is made (this is typically for insurance products); and
Performance-based fees: Additional fee if a defined investment benchmark is outperformed.
When determining who to retain as the financial planner/advisor on your team, and the compensation structure, it is important to define the specific scope of work (and tasks) that will be assigned to the financial advisor, and to ensure the advisor’s credentials and experience are a match. Hybrid structures are also possible. For example, the financial advisor may serve as an expert consultant during the divorce (and be paid on an hourly basis), and then convert to a financial planning/investment advisory role post settlement (and thereafter be paid based as a percentage of assets under management).