How Financial Advisers Get Paid — and Why It Changes the Advice You Get

If you've ever wondered whether your financial adviser recommended something because it suited you or because it suited them, you're not being cynical. You're asking the right question — and the fact that it's so hard to answer is a problem the advice profession has largely created for itself.

I should say plainly that I'm a financial planner. I earn my living from advice, so I have an obvious interest in you concluding that advice is worth paying for. Read what follows with that in mind, and apply every question in it to me as readily as to anyone else.

Here's the short version: nobody gets financial advice for free. You either pay for it visibly, or you pay for it invisibly. Understanding which one is happening to you explains almost everything else.

The ways an adviser can be paid

Strip away the terminology and there are only a few underlying arrangements.

Commission means the product provider pays your adviser when you take out a product. You never write a cheque, which is why it can feel as though the advice cost nothing. It didn't — the cost is generally recovered from the product itself, out of your money, over time. Commission often comes in two parts: an amount paid up front when the product is sold, and a smaller ongoing amount for as long as you hold it.

Fees mean you pay the adviser directly and the provider pays them nothing. That might be a flat fee for a defined piece of work, an hourly rate, a retainer, or a percentage of the assets they look after. The defining feature is that you can see it.

Salary means the adviser is employed and their institution pays them a wage, usually with some target attached. The institution's revenue still has to come from somewhere, so this is less a separate model than a layer sitting on top of one of the others.

Most real arrangements are hybrids — a fee for the planning work, commission on protection products, or a reduced fee alongside ongoing product-based income. Hybrids aren't worse. They're just harder to see, which makes asking more important rather than less.

Where the incentive sits

This is the part worth understanding properly, because it explains behaviour you may already have noticed without being able to account for.

If an adviser is paid when a product is put in place, the arrangement rewards transactions. That doesn't make any particular recommendation wrong — plenty of people genuinely need what they were sold. But it does mean that advice which concludes "do nothing for now", or "clear that debt before you invest anything", or "your existing arrangement is fine, leave it alone" earns the person giving it nothing at all. Good advisers give that advice anyway. The structure simply doesn't help them to.

Where commission is paid partly up front, the effect concentrates at the start — the moment of sale is worth more than the years of service after it. Where it's ongoing, the incentive shifts towards keeping you invested and keeping you as a client. That aligns better with a long relationship, though it can make an adviser reluctant to suggest anything that shrinks the pot they're paid on.

Fees paid by you reverse the visibility, which makes it far easier to judge whether the service justifies the cost. But a percentage-of-assets fee still rises as your portfolio grows, and can make an adviser cautious about advice that reduces the assets under their care — using capital to settle a bond, for instance. A flat or hourly fee removes that particular tension but can put thorough advice out of reach for people earlier in their financial lives.

Every model creates some incentive that doesn't point at your interests. The useful question isn't which model is free of conflict — none is. It's what the conflict is in this one, and how this particular adviser manages it.

Claw-backs, and why leaving can arrive as an invoice

This one catches people badly, usually at the worst possible moment.

When commission is paid up front, the provider is effectively advancing money against a product they expect you to hold for years. Cancel or move it sooner than expected and the provider can reclaim what it already paid out. That's a claw-back.

The part that surprises people is where the bill lands. Depending on what was agreed at the outset, the adviser may be entitled to recover that amount from you. Someone who moves their money for entirely sensible reasons — sometimes precisely because they've started worrying about costs — can find themselves invoiced by the adviser they're leaving.

Whether that can happen to you depends on the agreement you signed. Dig it out, read the section on remuneration and termination, and ask for anything unclear to be explained in writing. If a claw-back is already in dispute, that's a matter for a qualified professional and, if needed, the relevant ombud scheme.

The mechanism itself isn't improper — there's a coherent logic to it. The problem is almost always that people meet it for the first time as an unexpected bill, having never been told it existed. A sentence at the outset would prevent nearly every instance of that.

The costs you're probably not counting

Ask most people what their investment costs and you'll get one number. There are usually several, charged by different parties for different things: the advice charge for your adviser's time and service; the product charge for operating the wrapper your money sits in; the platform charge for holding and reporting on the investments; and the investment management charge levied inside the funds themselves, which never appears as a line on a statement because it's deducted before the figure you see.

Each may be perfectly reasonable alone. Stacked, they can come to considerably more than the single number someone had in mind — and because different parties levy them in different places, no one document necessarily shows you the total.

So ask for the total: every layer added together, as one annual figure, in writing. A capable adviser won't find that difficult or offensive. Reluctance is itself an answer.

What "independent" does and doesn't tell you

An adviser tied to one institution can generally recommend only that institution's products. That isn't automatically bad — the range may be perfectly good. But part of the answer was settled before you walked in.

An adviser who can select across the market has more room to match a solution to your circumstances, which is genuinely valuable. What it doesn't tell you is how they're paid: a wide product range is entirely compatible with commission that varies between the products in it.

Independence of product range and independence of remuneration are two different things, and one word on a business card settles neither. Ask both questions separately: what can you recommend? and who pays you, and does the amount change depending on what I choose?

Advisers in South Africa work under a regulatory framework that requires them to be appropriately licensed and to disclose their remuneration and the scope of what they may advise on. You're entitled to ask for that disclosure and for licence details, and to verify them independently. Requirements change over time, so confirm the current position rather than relying on a general description — but the entitlement to ask isn't in doubt, and a professional will expect it.

The questions worth asking

Ask these of anyone you're considering, and of an existing adviser if you've never covered the ground. Ask for answers in writing — not out of suspicion, but because writing forces precision.

• How exactly are you paid for the work you'd do for me?
• Does what you earn change depending on which product I end up with?
• Is any part of your payment made up front — and what happens to it if I move or cancel early?
• Could I ever be billed for a claw-back, and where does that sit in the agreement?
• What's the total annual cost of what you're proposing, every layer added together?
• What am I getting for the ongoing charge in a year when nothing changes?
• What can't you advise on or recommend?
• How do I end this arrangement, and what does that cost me?
• What's the weakness of the way you charge?

That last one is the most revealing on the list. You're testing self-awareness, not looking for a confession — and an adviser who can describe their own model's weak point without becoming defensive is showing you something more useful than any credential.

None of this makes you a difficult client. It's how you'd treat a builder quoting on your house, and the sums involved over a working life are usually larger.

Where this leaves you

Trust isn't restored by reassurance. It's restored by transparency you can check — which means the useful move isn't deciding in the abstract whether advisers can be trusted, but putting a short list of direct questions to one specific person and paying attention to how they answer.

If you already have an adviser, none of this needs to be a confrontation. "I realised I've never properly understood how you're paid — could you walk me through it and put it in writing?" is a perfectly reasonable request, and a good adviser will simply answer it.

Where this most often bites in practice is when someone moves an existing arrangement — which is worth bearing in mind if you're weighing up where new contributions should go against restructuring what you already hold.

Frequently asked questions

How are financial advisers paid in South Africa?

Through some combination of commission paid by the product provider, fees paid directly by you, or a salary from an employing institution. Commission is often split between an amount paid up front when a product is sold and a smaller ongoing amount. Many arrangements are hybrids, which is why it's worth asking specifically rather than assuming.

What is a commission claw-back?

When commission is paid up front, the provider is advancing money against a product it expects you to hold for years. If you cancel or move sooner, the provider can reclaim what it already paid. Depending on the agreement you signed, the adviser may be entitled to recover that amount from you — which is why people sometimes receive an invoice from an adviser they're leaving.

What's the difference between an independent and a tied financial adviser?

A tied adviser can generally recommend only the products of the institution they're tied to. An adviser who can select across the wider market has more room to match a solution to your circumstances. Neither label tells you how the adviser is paid, though — independence of product range and independence of remuneration are separate questions worth asking separately.

This article is for general information only and does not constitute financial, tax or legal advice. It doesn't take account of your personal circumstances. Charging structures, regulatory requirements and the terms of any individual agreement vary and change over time — confirm your own position with a suitably qualified professional before acting.