According to Neuvoo, financial advisors in Canada get paid between $36,000 to $133,000 per year.

This shouldn’t come as much of a surprise though. Most of us know that, in the country of Canada, being a financial advisor is a pretty solid occupation.

What you might not know though is how financial advisors in Canada actually get paid. In other words, how exactly are they compensated for the work they do?

As a curious Canadian myself, I decided to do some research to learn more about this topic.

How Do Financial Advisors Get Paid in Canada?

1. Client Fees

2. Commissions

3. Salary

4. Bonuses 

Before taking a deep dive into each one of these compensation structures, it’s important you understand exactly what a financial advisor in Canada is considered to be.

The Canadian Government defines a financial advisor as “anybody who helps you manage your money. This could include an employee of your financial institution, a stock broker or an insurance agent”.

Now let’s take a closer look at the 4 ways Canadian financial advisors get paid.

1. Client Fees

The fact that financial advisors charge fees for their services is not unique to Canadians. While I can’t speak for the rest of the globe, I am sure this is a pretty standard practice.

When referring to fees that financial advisors charge, there are two different types:

1. Fee-Based

2. Fee-Only

Fee-Based

If your financial advisor states their compensation model is Fee-Based, that just means they’re taking a small percentage of your total investments and paying it to themself.

This percentage is often referred to as the Management Expense Ratio (MER) and will typically range from 1%-2%.

Let’s look at a brief scenario below. While this will be a very simplified example, you should get the idea.

If Robert is holding $10,000 worth investments with a financial advisor whose MER fee is 2% annually, then Robert will incur a $200 annual fee from his financial advisor.

In other words, Robert’s financial advisor will charge him $200 for his financial services.

RBC provides a great pie chart on their website which helps illustrate how MER fees work.

Quick Note #1 – The MER fee will likely be expressed as an annual percentage, but if a financial advisor gets paid monthly then you need to divide the MER fee by 12 to calculate the monthly amount.

Fee-Only

If you are working with a Fee-Only advisor, you are likely speaking with more of a financial planner as opposed to an advisor.

Financial planners operate a little differently than advisors as they usually don’t manage and invest their clients money, but more so give financial advice for them to reach their short and long term financial goals.

This advice can range from how to budget properly, how to pay less in taxes, how to invest in the stock market or how to plan for retirement.

Nonetheless, Canadian financial planners usually only get paid using a fee-only payment model.

In short, a fee-only payment structure means the financial advisor/planner only gets paid for time spent with the client.

A lot of times, a fee-only advisor won’t actually have specific licenses or designations for buying and selling investments on your behalf, so the only thing they can charge you for is their time and advice.

Quick Note #2 – When choosing a financial planner in Canada, make sure they have their CFP designation. This certification means the financial advisor has a fiduciary duty to put their clients needs ahead of their own. More specifically, they can’t make commissions by recommending certain financial products to you.

With that said, oftentimes fee-only advisors (planners) offer the most trustworthy advice as they have no reason to give their clients poor advice for their own financial gain.

Not only this, but their payment structure is usually very upfront and transparent which makes it easy for their clients to understand how much they’re paying.

What sounds less complex to you?

“Mr. Robbins, every month you will be charged a 2% annual fee based on your total assets under management and we expect your $10,000 initial investment to grow by 8% year over year.

Or.

“Mr. Robbins, you will be charged $75 an hour”.

I rest my case.

2. Commissions

A large portion of a financial advisors income in Canada is paid through commissions.

While earning extra income through commission sales is great for a financial advisor, it might not be so beneficial for their client.

What Do Financial Advisors in Canada Sell to Earn Commissions?

You might be wondering, how do financial advisors earn commissions? After all, a financial advisor should be just that, an advisor – not a salesperson.

Financial advisors can earn commissions a few different ways.

Upfront Fees

For example, let’s say your financial advisor convinces you (for good or bad) to invest $100,000 in his fund that charges a 3% upfront fee.

Your financial advisor will take $3,000 (3%) of that $100,000 and pay it to himself as a commission payment.

While this is usually only a one-time fee per investment, you will be charged this 3% fee every time you invest more money.

Transaction Commissions

Another way financial advisors earn commission is by charging you for every transaction they make within your portfolio.

These commissions are usually a flat rate fee as opposed to a percentage. For example, your financial advisor may charge you $150 per transaction.

A transaction is anything from moving money in and out of mutual funds, selling off stocks or buying new investments.

Quick Note #3 – Be careful your financial advisor isn’t making an unreasonable amount of trades on your behalf without you knowing about it. These commission fees can really add up and decrease the overall value of your portfolio.

The downside of having a financial advisor that receives a commission per transaction is that the more transactions they make the more money they earn which could result in them making decisions that aren’t in your best interest.

On the contrary, fee-based advisors earn more money when their clients’ portfolios grow, so their main incentives are tied to growing their investment and not based on transaction volume.

Reselling Financial Products

Financial advisors often act as resellers for banks and investment institutions who sell financial products such as mutual funds and insurance plans.

Financial advisors will often be paid a commission for investing money on their clients behalf.

So for example, if your financial advisor advises you to invest $10,000 with him because he knows a mutual fund that will perform well, it is possible they will earn a commission payment for buying into that fund with YOUR money.

Weird concept isn’t it?

Not only that, but mutual funds companies often reward their salespeople, I mean advisors, with a trailer fee that is paid to them annually as long as they keep their clients money in the fund.

As I am sure you have noticed by now, there is a clear conflict of interest here.

If a mutual fund company is paying a financial advisor every year to keep their clients’ money within that fund, then the advisor’s judgement is compromised as they will earn money regardless of how the fund is performing.

Quick Note #4 – What makes things worse is that commission based financial advisors don’t have to have their CFP designation which means, by law, they don’t have to put their clients’ needs ahead of their own.  

The purpose of this section is not to turn you away from commission based financial advisors as there are a lot of good ones out there who have their clients best interest in mind.

It’s more to remind that depending on your financial advisor’s commission structure with you and other financial institutions, they can earn a pretty nice penny regardless of your portfolio’s performance.

3. Salary

Like a lot of commission jobs, financial advisors in Canada also get paid a base salary on top of their commissions, fees, and bonuses.

A salary is a fixed income paid to employees on a regular basis – bi-weekly, twice a month or maybe even once a month.

If a financial advisor tells you their base salary is $48,000 a year, that just means that regardless of their performance, they will earn $4,000 a month in pre-tax income.

Not always, but a lot of times big financial institutions will pay their new financial advisors a salary during their early years. Once the advisor has established a client base where they can support themselves without their base salary, they take it away.

While this is a gesture of good faith by the employer, it’s also a good incentive program to get high quality professionals to join their firm.

I have included a screenshot below from Glassdoor.com to give you a general idea of what some of the big financial institutions in Canada are paying their financial advisors in terms of salary.

As you can see, the salary of a financial advisor in Canada is pretty modest, while it’s not huge, it’s definitely enough to begin with as you start to build up clients.

And remember, the salary is just one form of compensation that financial advisors in Canada can earn.

Once a financial advisor catches his stride and begins making (ethical) commissions and bonuses, they can start to earn a very good living.

4. Bonuses

Speaking of bonuses, this is another way financial advisors in Canada get paid.

Like most performance based jobs, a financial advisor’s compensation plan often includes bonuses if certain criteria are met.

Criteria that could be included in a financial advisors bonus structure are:

• Hitting Sales Targets

  • Achieved by adding additional investment dollars into a fund with new or existing clients.

• Hitting New Client Targets

  • Achieved through acquiring more investment ready customers.

• Achieving Team Goals

  • Profit sharing bonuses. If the firm does well, you do well.

• Recruitment/Employee Referral Bonuses 

  • Recruiting high quality talent to join the firm.

At the end of the day, bonus plans are great for employees and companies as they incentivize hard work and excellent performance.

The better the advisor does, the better the firm does and the better everyone….what about the client?

Ah yes, this is the dark side of having bonus plans in place from the perspective of a client.

Short term bonus structures can sometimes incentivize financial advisors to make decisions that benefit them in the short term instead of thinking about the long term goals of their clients.

Remember, unless your financial advisor is CFP certified, then they aren’t legally obligated to put your needs as the client ahead of their own.

So again, while I truly believe most financial advisors in Canada act in good faith and put their clients first, there are some bad apples out there who prioritize their own financial well-being above all else.

Conclusion

The job of a financial advisor is not a voluntary position. Shocker!

To recap briefly, in the country of Canada, financial advisors get paid in 4 ways – fees, commissions, salary and bonuses.

It’s important to note that these compensation methods are not mutually exclusive.

In other words, most financial advisors in Canada will be compensated with some combination of the 4 methods discussed throughout the article.

If you’re looking to hire a financial advisor, make sure you do your due-diligence. Have a list of questions that you are ready to ask potential advisors.

If you’re considering a career as a financial advisor, expect to earn a decent living from your annual base salary, but as time goes on and you develop a clientele, you should be able to ethically grow your income through commissions, fees and bonuses.

If you don’t care anymore, I don’t blame you. This stuff is terribly boring!