what is a commission 
a commission is a service charge assessed by a broker or investment advisor for providing investment advice or handling purchases and sales of securities for a client there are important differences between commissions and fees at least in the way these words are used to describe professional advisors in the financial services industry a commission based advisor or broker makes money by selling investment products such as mutual funds and annuities and conducting transactions with the client s money a fee based advisor charges a flat rate for managing a client s money this may be either a dollar amount or a percentage of assets under management aum sales between family members are often gifts of equity which are not commission based understanding commissionsfull service brokerages derive much of their profit from charging commissions on client transactions commissions vary widely from brokerage to brokerage and each has its own fee schedule for various services when determining the gains and losses from selling a stock it s important to factor in the cost of commissions in order to be completely accurate commissions can be charged if an order is filled canceled or modified and even if it expires in most situations when an investor places a market order that goes unfilled no commission is charged however if the order is canceled or modified the investor may find extra charges added to the commission limit orders that go partially filled often will incur a fee sometimes on a prorated basis today most online brokers no longer charge commission for buying and selling stocks commission costscommissions can eat into an investor s returns suppose susan buys 100 shares of conglomo corp for 10 each her broker charges a 2 5 commission on the deal so susan pays 1 000 for the shares plus 25 six months later her shares have appreciated 10 and susan sells them her broker charges a 2 commission on the sale or 22 susan s investment earned her a 100 profit but she paid 47 in commissions on the two transactions her net gain is only 53 many online brokerages offer flat rate commissions such as 4 95 per trade but note however that there is an increasing trend for online brokers to offer commission free trading in many stocks and etfs for this reason online discount brokerages and roboadvisors are gaining popularity in the 21st century these services provide access to stocks index funds exchange traded funds etfs and more on a user friendly platform for self directed investors most charge a flat fee for trades commonly between 0 25 and 0 50 per year of assets managed online brokerage services also provide a wealth of financial news and information but little or no personalized advice this can prove troublesome for some rookie investors commissions vs feesfinancial advisors often advertise themselves as being fee based rather than commission based a fee based advisor charges a flat rate for managing a client s money regardless of the type of investment products the client ends up purchasing this flat rate will be either a dollar amount or a percentage of assets under management aum a commission based advisor derives income from selling investment products such as mutual funds and annuities and conducting transactions with the client s money thus the advisor gets more money by selling products that offer higher commissions such as annuities or universal life insurance and by moving the client s money around more frequently a professional advisor has a fiduciary responsibility to offer the investments that best serve the client s interests that said a commission based advisor may try to steer clients toward investment products that pay generous commissions as opposed to those that actually benefit the client 