Broker/dealers pay commissions to advisors when they sell company products and create securities transactions. Third parties also pay commissions when advisors sell their investment products that include: mutual funds, hedge funds, annuities, and life insurance.

Commissions from third parties are divided between advisors and the broker/dealers who hold their licenses. The division of revenue varies by company and is based on the support that is provided to advisors by companies. Advisors who receive more support have lower payouts. Advisors who receive lower levels of support have higher payouts.

If your financial planner or financial advisor tells you that you aren’t paying for their commission, this isn’t exactly true. The third party companies who pay the commissions to advisors have to have a way to recoup their commission payouts. This is done by charging various fees and expenses associated with the product you purchased. Here’s a good explanation of how this is done, using a mutual fund as an example.

So while you don’t pay out of pocket expenses, you are paying fees for these products. Remember, there is no such thing as a free lunch!