There is one question every investor ought to ask before deciding where to invest:
“How is my adviser remunerated?”
It may sound straightforward, but it is the starting point for understanding how the person advising you on your savings truly operates.
Behind every investment proposal lies a system of remuneration — and not all of them align the interests of client and adviser in the same way.
Let us examine the five principal cost models in financial advice: how they work, the logic underpinning them, and, above all, what they mean for you as an investor.
1. Commission only: the traditional model
This is the oldest system and, in many cases, still the most widespread: the adviser is paid by the bank or the company that issues or distributes the product, in the form of commissions or retrocessions.
For the client, the advice “costs nothing” — at least in appearance. In reality, the remuneration is already embedded in the cost of the products: funds, insurance policies, managed accounts, and so on.
The problem? The evident conflict of interest. If the adviser’s earnings depend on the product sold, the temptation to favour whatever pays the most is unavoidable.
This is precisely why, at European level, MiFID II imposes strict limits: commissions are permitted only in non-independent advice, and only if they genuinely improve service quality without harming the client’s interest. In the United Kingdom, by contrast, they were banned outright as early as 2012.
2. Fee on top: the charge “above” product costs
In the fee on top model the adviser is paid directly by the client, with a fee calculated as a percentage of assets under advice or as a fixed amount, in addition to the costs of the products or platform used.
In practice, it is as though one were saying: “You pay for my service, and you also bear the running costs of the products we use.”
It is a highly transparent arrangement, because it cleanly separates the value of advice from the cost of management.
The client knows precisely how much they are paying for the adviser’s expertise and how much for the instruments themselves.
This is now the prevailing standard in the Anglo-Saxon world, where the principle of adviser charging has become synonymous with transparency and accountability.
The one potential drawback? It can represent a “double cost” if the added value of advice over and above the product itself is not clearly articulated.
3. Fee & commission: a hybrid model
As the name suggests, this arrangement combines a fee paid by the client with commissions received from third parties.
It is typical of advisers who operate under non-independent advice but wish to signal transparency by also charging a fixed element for their own work.
It is a compromise between the old and the new world: more transparent than commission only, yet still tied to retrocession logic.
It works well only when there is complete clarity about all sources of income and when the adviser reports periodically on how much has been received from each party.
Otherwise, the risk is one of confusion and of feeding the client’s suspicion (“are you recommending this fund because it suits you, or because it suits me?”).
4. Fee offset: the self-financing charge
The fee offset model is, in a sense, an evolved version of the hybrid approach.
The adviser establishes a clear annual fee, but any commissions received from third parties are returned or offset against the client’s fee.
In practice, if the adviser receives retrocessions, these are credited in full to the client, reducing the fee — potentially to zero.
It is an elegant arrangement, coherent with the logic of independence, because it neutralises the economic conflict whilst acknowledging that, in certain markets (consider life assurance or offshore funds), commissions exist regardless.
Technically complex — it demands precision in reporting and contractual transparency — it nonetheless represents an intelligent middle ground between the fee-only world and market reality.
5. Fee only: genuinely independent advice
Finally, the purest model: fee only.
The adviser is paid solely by the client, with a direct fee, without receiving any commission or incentive from intermediaries.
No retrocessions, no conflicts, no ambiguity about whose side they are on.
This is the model adopted by independent financial advisers and by Financial Advisory Firms (Società di Consulenza Finanziaria — SCF) in Italy, as provided for under MiFID II.
The sole source of income is the client’s trust and the perceived value of the service.
From the client’s perspective, this is the model most transparent and most closely aligned with their personal interest.
The only “obstacle” is cultural: a direct fee is charged, and not everyone is accustomed to recognising an explicit cost for a service that, for decades, was “included” within financial products.
Yet, in a world where every hidden cost erodes returns, paying transparently means keeping your hands on the wheel of your own decisions.
In summary
Each model has its own logic and its own history.
The difference lies in the level of transparency and the degree of alignment between adviser and client.
| Model | Who pays | Potential conflict | Transparency |
|---|---|---|---|
| Commission only | Product provider | High | Low |
| Fee & commission | Client + providers | Medium | Medium |
| Fee offset | Client (with commission credit) | Low | High |
| Fee on top | Client | Medium-low | High |
| Fee only | Client only | None | Maximum |
Beware of hidden incentives: bonuses, prizes, and network targets
Even when an adviser charges a direct fee or applies a “hybrid” model, if they work on behalf of a bank, an investment firm (SIM), or an insurance company, their remuneration may include variable components that are difficult to identify.
Beyond commissions and retrocessions on products, many intermediaries award their advisers:
- production bonuses, linked to volumes of assets gathered or to sales of specific financial instruments or policies;
- commercial incentives, rewarding the achievement of periodic targets or the promotion of particular product lines;
- loyalty awards or corporate benefits, which may include financial advantages, travel, or career recognition.
These mechanisms are not unlawful in themselves, but they can generate conflicts of interest even in advice models that appear to be “fee-based”.
An adviser employed by a bank, for instance, might charge a fee on top yet still be incentivised to favour their own institution’s products.
True transparency is not merely about “how much” the advice costs, but where the income of the person advising you actually comes from.
A final thought
When choosing an adviser, do not simply ask them “what returns they achieve” or “which products they use”.
Ask them, with equal directness:
“How are you remunerated? By whom?”
The answer will tell you far more than any factsheet.
Because in the long run, what makes the real difference is not the markets, but the transparency of the relationship and the quality of alignment between the person entrusting their capital and the person advising on it.