Paying your adviser

See it in context

It's important to know how your financial adviser gets paid, and the impact that can have on the advice you're getting.

Knowing how they're paid helps you see their advice in context.

Advisers can have a vested interest in a certain product that makes them more likely to push it at the expense of other options that might suit you better. It's especially important to understand where commission is earned (this will be explained in the adviser's disclosure statement).

We're not saying that all commission-based advisers are out to push their products and nothing else. But be aware that they stand to gain if you buy something from them.

If a commission salesperson advised you to pay off your high-interest debt before starting on a superannuation savings scheme, you'd know that was good advice.

Financial advisers can be paid in several different ways: salary, commission or hourly rate.

Salary

Some advisers are paid a salary by a company, such as a bank. This means they'll be promoting that bank's products, and/or the products of other companies the bank has relationships with - like an associated insurance company, for example.

Commission

An adviser could be paid a commission when they sign someone up for a particular product (eg a life insurance policy or a savings scheme). They could also be tied to a particular company or get more commissions by selling one particular company's products. In this case, advisers are more likely to suggest you sign up for those products, so they can get their commission.

There are two types of commission:

• Up front commissions paid by the institution to your adviser when you buy a product (eg a life insurance policy or savings scheme).
• Trailing commissions - paid by the institution to your adviser each year you stay with that product. It's designed to encourage the adviser to keep in touch with you on a regular basis.

There's nothing necessarily wrong with commissions but they are paid regardless of the value of the work the adviser does for you. Find out from the disclosure statement how much the commission is both up front and trailing - then judge for yourself whether you think that's good value for the work done. You can also compare how much one adviser charges with another. If you don't think it's good value, negotiate a lower commission.

But remember, negotiate before you sign anything or pay your money over. Afterwards it's too late.

Hourly rates

Some advisers are paid an hourly rate by you. Although these advisers generally work independently of any financial company, they might still favour particular companies and products. The disclosure statement will tell you if they receive any commission as well as the hourly rate you're paying them.

Hourly rates can range from less than $100 to $400 per hour. Check the rate before you use the service and don't go ahead unless you're confident that the adviser will give you value for money.