What is an Advisor Fee?

An advisor fee refers to an amount of money that investors or clients pay investment companies for the services the rendered. The variety of services offered by investment companies include professional advisory services, investment and asset management services. When these services are offered, a fee is charged known as advisor fee. Financial advisors, fund managers, and broker-dealers can also charge advisor fees from clients.

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How Does an Advisor Fee Work?

There are different services that attract advisor fee, this fee is not limited to investment companies or portfolio managers. More extensively, professionals charge advisor fees for professional and advisory services they render. When charged by an investment company, an advisor fee compensates a service provider for helping investors or clients make profitable investment decisions. Investors that hire a broker-dealer or fund manager to execute a transaction are required to pay an advisor fee. There are two types of advisor fee, they are;

• Asset-Based advisor fee
• Commission-based advisor fee.

Asset-Based Fees

An Asset-based advisor fee is charged by investment companies or fund advisors based on the amount of asset held by an investor. For financial advisors who owe their clients a fiduciary duty to manage their assets, they charge a fee using the total value of the asset being managed. These advisors go over and above trying to ensure that the investment decisions align with the objectives of the clients and profit maximized. They charge the highest asset-based advisor fee which might be up to 1.25% of the assets.

Commission-Based Fees

Advisors who do not charge asset-based fee charge commission-based fees. Broker-dealers or financial advisors that charge this fee have the fiduciary responsibility to ensure that the investment they manage on behalf of clients does not fall short of the required standards and meet the investment needs of the client. A commission-based fee is a charge based on the entire service rendered by the broker-dealer or advisor, while such fee can be a flat fee, others give a particular amount charged as commission to clients and investors. Sales Loads Another form of compensation for advisors is sales loads, clients and investors incur sales loads during a consultation or interaction process with a financial advisor or broker-dealer. Sales loads are often used in mutual funds and are contained in the funds prospectus. Sales loads are different from management fees, these fees can be front-end, back-end or level-load fees. Different categories of shares class attract different sales loads. For instance, A-shares have front-end loads, B-shares back-end loads and C-shares level-load fees.