There are many different ways advisors are paid in the financial services industry. For the sake of this brief article, I will broadly categorize all of the fee structures into three categories. They are Commissions, Fee-Only and Fee Based.

Commissions

The traditional and most common way fees are charged is through commissions. Commissions are typically paid when an investment or insurance product is either bought or sold. Commission based advisors do not get paid unless you buy or sell something. If you believe you do not pay fees to your insurance or investment advisor, than you most likely work with a commissioned advisor that receives a percentage of each transaction.

Fee-Only

The Fee Only model is the newest payment structure on the block. There are different ways Fee-Only advisors are paid. Fees may come from a flat annual retainer, by the hour, or a flat annual fee based on a percentage of your investment assets. Fee-only advisors do not receive any commissions or kickbacks from the investment products they recommend. Fee-Only advisors tend to be more comprehensive and objective because they are paid the same regardless of which investments you choose.

Fee Based

Fee Based advisors are a hybrid of the Commission and Fee-Only model. Fee Based advisors are commonly mistaken for Fee-Only, however, there is a distinct difference between the two. The Fee Based advisor receives commissions for products sold, but also charges an additional fee for advice. In contrast, Fee-Only advisors don’t receive any compensation from insurance or investment products sales.

So which is best?

As objective as I’ve tried to be in this article, I’m a Fee-Only advisor so I’m obviously biased. As in any industry there are good and bad people in each of the categories. Your job is to understand exactly what you’re paying and what you get in exchange for that fee. Each of the three fee structures has advantages and disadvantages to both the advisor and the consumer. There is not enough space in this article to cover all the pros and cons, but I encourage you to learn more and then choose an advisor with a fee structure that is most likely to put your interests first.

Daily I’m asked about the economy and at least weekly I receive a media inquiry asking me to forecast it. Rarely do I comment or make predictions on the day to day activity of the economy. I have been following and investing in the stock market for over 15 years. During those years I’ve learned that no one can predict the direction of stock market in the short run, but I am confident that in the long run it will reach new record highs. I learned this during my academic training and then reinforced it by making my share of mistakes.

Those who try to predict the market in the short term are either lucky or wrong. Large investment companies spend millions of dollars hiring investment analysts to predict the economy. Of these analysts, half are right and the other half are wrong, but none are consistently right. This is always true because for every buyer, there must be a seller, and they can’t both be right.

Most of the headlines we hear about the economy are stories of doom and gloom. We hear these stories from newscasters who know little about the economy, but are paid to sensationalize it. Face it, news would not sell if the headlines were, “Everything is going well, just stay the course.”

The more you ignore the short term economic conditions the better off you will be. Focusing on the news will more than likely lead you to make poor choices because these factors have very little impact on your goals. The headlines are beyond your control and have relatively little influence on your investment success compared to the things you can control.

For example, whether the economy goes up or down 10% over the next six months is far less important than you making the maximum contribution to your retirement plan. It’s also far less important who is elected than if you are living within your means and spending within a reasonable budget. And it’s irrelevant what happened to Enron, as long as you are invested in a well diversified portfolio where one or two bankrupt companies only represent a very small fraction of your investments.

I hope you can see from my examples that our individual success depends more on our choices. The current state of the economy impacts us far less than the media would lead us to believe. Each of us will feel the impact of the economy to varying degrees, but do not fall into the dangerous trap of believing those events control our fate—they don’t—we do. It is urgent that you “act now.” You need to act now to get the basics of your financial life in order; but not because of state of the economy.