Getting a reputable financial adviser can be hard; in reality, a lot of them are terrible, so you have to be very careful in selecting the most suitable one to work with.

Given that I used to be involved in portfolio management for a leading asset management firm, for a huge asset management company, I am going to give you an insider’s perspective on what you need to look for in access your the fee that you pay your financial adviser.

Financial advisers are most often paid in one of three specific ways. Older financial advisers (the ones that used to be pure stock brokers) get a commission based on any sales that they do in your account, which is paid to them whenever you purchase a stock, bond or mutual fund. This is a form of transactional payment, because the advisor is paid on the trades that they make for you rather than your bottom line account growth.

This fee is generally charged to the client right after the adviser buys an investment for them, which really doesn’t do anything to encourage the adviser to do anything more than sell you things that he thinks you will buy. This type of compensation is definitely the most dated, which means that you should definitely be cautious about working with this sort of financial adviser.

The second type is an adviser that charges a residual fee, which is usually a percentage of the capital that you have with them. In the last decade, the wealth management industry has been going through a transition to this sort of structure.

In my experience, clients generally like this type of fee the best, since they pay of their adviser is directly related to their account performance. If the clients account makes money, the adviser get a higher fee; if the account loses money, the adviser gets a lower fee

The main problem with this sort of arrangement is that it encourages the investment adviser to allocate all of your money, because the fee that they charge doesn’t usually include available cash position. If anything, the recent economic turmoil has shown that it isn’t always smart to be fully invested, with this sort of fee plan making it far more likely that your adviser will try to convince you to invest as much as possible into the market.

Lastly, there is a type of financial planner that only charge you for investment consultation, rather then on your account balance or transactions. In this type of circumstance, you will generally pay on a hourly basis - or per session - and may not even have your investments managed by the adviser. The main issue with this is that such advisers may not take a longer-term outlook with your portfolio - or even give it a considerable amount of thought - since they are simply paid by the hour/by appointment, while the other two type often meet with new prospects for free.

With everything considered, I think that the best option would be the fee based on assets under management. The main advantage of this over the other two is that it favors a longer term relationship, and aligns your interests with the adviser’s. Even so, you should fastidiously investigate any adviser, before you decide to give them your business.