What is a fee-based investment?

Fee-based investment is a financial opportunity that can be used to construct compensation to financial advisors based on the assets held by the client, rather than the commission charged for each transaction performed on behalf of the investor. Depending on the investor’s financial situation, compensation for this plan may be more cost-effective than traditional commission methods. As an additional incentive, if the reward is based on the value of the customer’s assets rather than the number of transactions, the likelihood of a broker or dealer engaging in agitation will be greatly reduced.

The financial benefits of a fee-based investment strategy extend to both clients and brokers or consultants. Customers often find that brokers pay more attention to transactions that may continue to generate revenue in the long-term, which is a factor that helps strengthen the financial situation of these customers. Brokers can in turn engage in activities that increase the value of customer accounts, which in turn means consistently higher rewards.

Another major benefit of the fee-based investment method is that it helps to minimize the possibility of so-called churn. Churning is an ethically questionable practice in which consultants continue to transact on behalf of clients in order to increase commissions and profit from each transaction. This kind of excessive trading will destroy the relationship between the broker and the client, and at the same time limit the return that the client can receive. Since the fee-based investment method means that unless the value of the investment account increases, the broker will not get more income, so there is no need to carry out a series of transactions that are not really necessary or in the best interests of the client.