There are different ways to pay the financial advisers, and this article describes the biases and conflicts that are in each of these payment mechanisms.
 Hourly rate
Being paid according to an hourly rate the financial planner is inclined to earn more and he/she tries to give more advice and sell more hourly services. The attention to uselessness of this advice is usually not paid. Even if the advice is done properly, it will be very expensive as it’s necessary to customize it to the client.
Flat rate
If the adviser is paid according to a flat rate, he or she may be inclined to give the client canned advice to seem more productive. In such case advice is not accommodated to each specific situation as it causes more time spending.
The time in flat rate paying is not compensated.
Percent of assets under management paid annually
If an adviser gets each year some percentage of assets under management, he or she may want to keep as much under management as possible and this will lead to some bias against using funds for other purposes. This scheme can encourage the planner to take bigger risk. Apparently, the client has to put some assets under management, but the particular investments don’t matter.
Commissions on sales
If the planner receives a commission on any product sold to the client, he may want to close the sale on products that will bring the adviser a commission and discourage the purchase of products that won't bring it.
Since advice is offered to persuade the client to buy, planners tend to be rather thorough in raising issues that are related to their products and vice versa. The advantage of this method is that a client is able to walk away whenever he wants.
None of these issues are insuperable disadvantages in any payment scheme and qualified specialists will always have everything under control.
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