How do financial advisors get paid, and which model is cheapest?

There are three common models. AUM (assets under management) advisors charge a percentage of your portfolio, typically around 1% a year – so $10,000 annually on a $1 million portfolio, every year, whether or not you got advice. Flat-fee or hourly advisors charge a set price, perhaps $2,000–$5,000 for a plan or $250–$400 an hour, regardless of portfolio size. Commission-based salespeople earn money from the products they sell you, which creates a clear conflict. For most people, flat-fee or hourly is the most transparent and cheapest over time, because a 1% AUM fee compounds into hundreds of thousands of lost dollars over decades. Always ask for the total annual cost in dollars, not just a percentage – the dollar figure is what stings.