Washington State Department of Financial Institutions

Where to Turn for Help with Investments

How Do You Want To Pay for Those Services?

Another factor that may affect your choice of investment services provider is how you prefer to pay for services. Your options fall into three basic categories:

Providers may rely on only one compensation method, combine the different compensation methods within an account, or offer different compensation options to different clients.

Percentage of assets under management
Some investment services providers, including most investment advisers, charge a fee based on a percentage of the assets in the client's account. The percentages charged can vary significantly from provider to provider. Also, providers typically charge larger accounts based on lower percentage rates.

Commissions
Some providers, including many brokers, receive their compensation based on commissions clients pay each time they buy or sell a security. This can be an affordable option for those who expect to trade only rarely, but it may expose clients to potential conflicts of interest, such as creating an incentive to recommend frequent trades or particular investment products.

Fees
Some providers, including many financial planners, charge fees for their services which clients pay directly to the provider. They may be hourly fees or a flat fee or retainer fee for a particular service or range of services. They may also include a performance fee based on how well the client's account performs.

Ultimately, you should determine which method of compensation offers you the lowest total costs and which method best aligns your interests with those of your investment service provider.

Source: The Coalition on Investor Education

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