How Financial Advisors Get Paid (And Why It Matters More Than You Think)

If you’re a first-generation professional building wealth without a financial safety net, hiring a financial advisor can feel intimidating.

You’re making good money. You know you should be doing more than just maxing out your 401(k). But once you start researching what to do next, it gets confusing fast. Should I buy a course online? Should I pay an advisor? What will they try to sell me?

One of the biggest reasons people hesitate to work with an advisor is simple. It’s hard to understand how advisors actually get paid.

And I would argue that it does matter. It matters more than most people realize.

How an advisor is paid can influence the advice you receive. That doesn’t mean some advisors are good and others are bad. It means incentives shape behavior, whether we like it or not.

Let me walk through the most common financial advisor fee structures, what they really mean for you, and why I built Canela Wealth differently.

How Advisors Get Paid Deserves More Attention

Most people assume that once they hire an advisor, they’re getting comprehensive, objective financial advice.

But in reality, not all models are designed to prioritize financial planning.

If you grew up without exposure to investing, insurance, or wealth management, it’s even harder to tell the differences. And fees are usually buried where you wouldn’t notice them.

Understanding how an advisor gets paid can help you ask better questions and make more confident decisions.

Commission-Based Financial Advisors

This is the oldest model in the financial advisory industry.

Commission-based advisors are paid when you buy a financial product. Some of the more common examples I’ve seen are:

• Whole life insurance
• Indexed universal life insurance
• Annuities
• Disability or long-term care insurance policies

You don’t write them a check. Their commission comes from the company that manufactures the product.

On the surface, this can feel free. You might hear, “There’s no cost to work with me,” and then they give their spiel about how this product will improve your financial future.

Here’s the issue.

When an advisor only gets paid if you buy a particular product, well, then there’s a pretty strong incentive to sell that specific product.

Many commission-based advisors have sales targets. They may get bonuses for selling specific products. I know that some truly care about their clients. But the business model rewards transactions, not long-term planning.

My biggest issue with this is that clients will think they’re receiving holistic financial advice, that this person knows what’s best for them, when in reality, they were sold a product without a deep analysis of alternatives.

For first-generation wealth builders, this can be especially harmful. You took a huge step by asking for help, only to end up with something expensive that may not have been necessary.

Assets Under Management (AUM) Fees

This is one of the most common models today, especially at traditional wealth management firms.

With an AUM model, the advisor charges a percentage of the investments they manage for you.

A common fee is around 1 percent.

Here’s how that looks in practice:

• $500,000 invested at 1 percent equals $5,000 per year
• $750,000 invested at 1 percent equals $7,500 per year

As your investments grow, the fee increases automatically.

Many advisors include a financial plan with this. You might meet a few times a year, and the advisor will manage trades in your accounts.

There are two major issues with this structure.

1. Incentives Around Your Assets

An advisor paid on AUM is compensated based on how much money stays invested with them.

So if you want to use funds to buy a home, pay off a mortgage, or start a business, the advisor is financially incentivized to recommend keeping assets invested instead.

That doesn’t mean they’ll always give bad advice. But the incentive is there.

I’ve also seen that many AUM advisors don’t spend much time on assets they don’t manage, even though they can be an important part of your financial life. They might not help you with things like your 401(k), equity compensation, or major cash flow decisions because they don’t manage those accounts and they don’t get “paid” for those decisions.

2. Most Clients Don’t Feel the Fee

You don’t write a check. The fee is deducted quietly from your investment accounts.

Someone with a $3 million portfolio may pay $30,000 per year. Someone with $2 million pays $20,000.

Is the planning work really worth $10,000 more? Often, no.

Flat Fee and Project-Based Financial Planning

This is the model I use at Canela Wealth.

You pay a clearly defined fee for financial planning. That’s it.

There are no commissions. No product sales. No percentage tied to your investment balance.

You’re paying for the financial planning: the analysis, the strategy, and the decision-making support.

This model works especially well for people who:

• Earn a high income but don’t have a ton of assets invested yet
• Have most of their wealth in a 401(k) or workplace plan
• Need help with equity compensation, taxes, career decisions, or planning for kids
• Want to know what they’re paying upfront
• Don’t want to move all of their accounts to a new custodian

Depending on the advisor, this can look like a one-time planning engagement, ongoing support, or something in between.

The Honest Trade-Off

My favorite part about this model is also one of the hardest. It’s visibility.

You see the fee. You feel the cost. If no one in your family has ever worked with a financial advisor before, it may seem unreasonable to spend hundreds or thousands of dollars on something you’re not familiar with.

Other models hide fees inside products or investment accounts. Flat fee planning doesn’t do that.

Transparency can feel uncomfortable at first. But it also gives you clarity and control.

You know what you’re paying. You know what you’re getting. And you can decide whether the value makes sense for you.

Why I Built Canela Wealth This Way

I built Canela Wealth after seeing how traditional fee structures fail first-gen wealth builders.

Most firms are designed for people who already have wealth. If they help people still early in their investing journey, it’s probably because they are set to inherit large sums of money.

First-generation clients need something different.

At Canela Wealth, we focus on the whole financial picture, including:

• Cash flow and spending decisions
• Taxes and tax planning opportunities
• Career growth and income strategy
• Equity compensation
• Insurance planning
• Estate planning basics
• Building wealth intentionally from scratch

Many traditional models don’t go deep in these areas because they’re not directly tied to how the advisor gets paid.

If We Aren’t a Fit, I’ll Help You Find the Right One

I’m met many incredible advisors doing meaningful work across the industry.

If Canela Wealth isn’t the right fit for your situation, I’ll help point you toward trusted, values-aligned professionals who are better suited for your needs.

The goal isn’t to force you into a process. It’s to make sure you get the right help.

If you’re ready to explore what working together could look like, I invite you to reach out. Even clarity around your options can be a powerful first step.