When it comes to personal finance, many Nigerians are becoming more intentional about seeking professional guidance. But one key question often arises before hiring an advisor: “How do financial advisors make their money?”
Understanding this question is crucial because it helps you know what you’re paying for, avoid hidden costs, and ensure your advisor’s interests align with yours.
The Two Main Earning Models
Most financial advisors in Nigeria earn income through either commissions or fees — and sometimes a combination of both.
Each model comes with advantages and disadvantages, so knowing how your advisor is compensated helps you make informed choices.
1. Commission-Based Advisors
These advisors earn a commission each time they sell a financial product. This could be an insurance policy, a mutual fund, or investment-linked product from a bank or asset management company.
For instance, when an advisor from a firm like ARM, Stanbic IBTC, or Leadway sells you an insurance plan or investment product, they may receive a percentage of the transaction as payment.
Pros:
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Commission-based advice can sometimes be free at the point of contact, making it more accessible for people who can’t afford upfront fees.
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It’s convenient when you just need a specific product or one-time service.
Cons:
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The model can create conflicts of interest. Some advisors may recommend products that earn them higher commissions rather than those that best suit your goals.
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Certain products (like annuities or insurance policies) may come with long lock-in periods or exit penalties, which clients often overlook.
2. Fee-Based Advisors
Fee-based advisors charge clients directly for their time or expertise. This model is becoming more popular in Nigeria, especially among independent financial planners and wealth managers registered with the Securities and Exchange Commission (SEC).
There are different types of fees within this model:
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Flat Fees: You pay a fixed amount annually or monthly for ongoing advice.
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Hourly or Per-Session Fees: Ideal for people who just need help with budgeting, investment planning, or retirement strategy.
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Assets Under Management (AUM) Fees: The advisor charges a small percentage (usually around 1%) of the money they manage for you each year.
Pros:
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Transparent and easy to understand — you know exactly what you’re paying for.
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Reduces conflicts of interest since your advisor’s income doesn’t depend on selling products.
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Encourages a long-term advisory relationship focused on your financial goals.
Cons:
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The cost may be higher for those with limited savings or low investment balances.
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Some advisors focus only on clients with large portfolios, leaving middle-income earners underserved.
Choosing What Works for You
Before working with any advisor in Nigeria, ask these important questions:
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How are you compensated?
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Are you registered with the SEC or any professional body?
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Do you receive commissions for recommending certain products?
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What exactly does your service include — financial planning, investment advice, or both?
These questions help you identify whether the advisor’s incentives align with your best interests.
Final Thoughts
As Nigeria’s financial landscape evolves, transparency in advisory services is becoming more important. Whether you’re working with a bank-based advisor, a private planner, or an online investment coach, always understand how they get paid before committing.
Remember, a good advisor’s job isn’t just to sell products — it’s to guide you towards building sustainable wealth, reducing risks, and helping you make smarter money decisions.
Emmanuel Bassey is a Financial Expert that has worked in the Banking and Finance Industry for over 15+ years across different banks in Nigeria
