How Much Does a Financial Advisor Cost?

How Much Does a Financial Advisor Cost?

CATEGORY

How Much Does a Financial Advisor Cost?

Getting finances in order should be a top priority. Many people don’t know where to start when it comes to planning for their retirement, though, and can get overwhelmed with the process. Hiring an expert is a good idea, but the process of hiring a financial planner or advisor can also be a little daunting.

One of the big questions that comes up is: “How much does a financial advisor cost and is it worth it to hire a professional?” Many people opt to do their personal finances themselves, but the investment of hiring an expert often pays for itself as a financial professional is able to navigate the financial marketplace and choose investments and portfolios that produce strong returns.

No matter if you are already working with one or are trying to figure out if you should hire a financial advisor, these are questions to consider:

  • How much does a financial advisor charge?
  • How are financial advisor costs calculated?
  • What are commission-based financial advisors and how do they work?
  • What are fee-based financial advisors, and how do they operate?
  • Is it worth paying for a financial consultant?

Educate yourself on how financial advisors are compensated to discover what makes the most sense for you. Here are the most common ways financial advisors and planners charge fees:

1. Percentage of Assets Under Management (AUM)

Many companies follow this model. If you are considering hiring an advisor who is compensated in this way, it is important to understand if they are providing investment management as well as financial planning. There will be a higher charge if they are providing both services. This type of fee arrangement often leads to an incentive for the advisor to encourage their clients to keep more money invested with them, even if it may not be in the client’s best interest.

You will also need to ask a potential advisor who charges this way if they are:

  • Commission or fee-based – Advisors who may charge a fee in addition to collecting commissions for the products they sell.
  • Fee-only – Advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Often, these advisors are more likely to use low-cost funds in your account, minimizing the overall expenses. These advisors cannot collect commissions.

Since the advisor in this scenario will get a percentage of assets payment as your account value grows, the advisor will make more money. If your account value goes down, they will make less money. In this way, they have an incentive to grow your account and to minimize losses.

This structure can be convenient as fees are debited right from accounts – so no check has to be written and the fees don’t have to come out of the monthly budget. Also, fees debited from IRAs are being paid with pre-tax dollars – which can be great for those in retirement.

A typical asset management fee can range from 2 to 0.5 percent of assets under management per year. Generally, the more assets you have, the lower percentage you can negotiate.

Fees for asset management can range from 2 to 0.5 percent of assets under management each year, depending on the firm and the asset class. The lower your percentage is, the more assets you control.

2. Hourly Rate

If you are a self-starter when it comes to your finances and are willing to implement a financial advisor’s recommendation on your own, the hourly rate model is a great option. Financial advisors and managers who follow this model are not responsible for making the changes or putting in place the financial investments or advice they suggest, so they are not tied to the value of the investments or the purchase of an investment; this means you can feel confident you will receive objective advice.

Just like attorneys, or accountants, hourly rates will vary widely based on expertise, certifications and area of specialty. Expect to pay a higher hourly rate for experienced advisors, or advisors who have an area of specialty. Lower rates will be charged by less experienced advisors.

Hourly rate advisors typically charge between $100 and $300 per hour, with the average rate falling around $150 per hour. However, depending on the advisor's experience and expertise, rates can range from as low as $50 per hour to upwards of $500 per hour.

When considering an hourly rate financial advisor, be sure to ask about their credentials, experience and areas of expertise. Also, ask for a list of references from past clients to get an idea of the quality of advice and service you can expect. Finally, be sure to negotiate the hourly rate upfront to avoid any unwelcome surprises down the road. Working with an hourly rate financial advisor can be a great way to get the advice and guidance you need without breaking the bank. Just be sure to do your homework first to ensure you're getting the best value for your money.

3. Commissions

This is one of the most common payment models for financial advisors. You have to be careful with this model as the financial advisor may have ulterior motives to push specific investments if they get a commission. Basically, their advice can be influenced by the way they are compensated.

Make sure you ask a potential financial advisor for a clear explanation of how they are compensated and whether they receive commissions if you buy the investments or products you recommend. Keep in mind that commissions can take the form of a surrender charge on an annuity, front-end sales load charged on a mutual fund, or as a payment directly to the advisor from the investment company in a non-publicly traded REIT.

4. Fees and Commissions

Many advisors collect a combination of fees and commissions, also known as term fee-based. These advisors have their own model of how they are compensated, so make sure to ask for a breakdown of their costs, both fees and commissions, so you understand where the charges are coming from. Some advisors collect hidden costs in addition to their stated fees or commissions. Hidden fees are often buried in the fine print of investment documents. They can be hard to spot and even harder to understand. Many people don’t realize they’re paying these fees until it’s too late.These may be called 12b-1 fees, trailer fees, or even sub-accounting fees.

Commissions are fees that you pay when you buy or sell investments. Some advisors receive commissions for selling certain products, such as mutual funds. The commission is paid by the investment company, not directly by you; however, the cost of the commission is built into the price of the investment. Over time, these costs can add up.

12b-1 fees are charges that mutual fund companies pay to brokers or other intermediaries to market and sell their funds. These fees are paid out of the assets of the fund and can be charged every year, regardless of how well the fund performs.

Load fees are charges that you pay when you buy or sell certain types of investments, such as mutual funds. There are two types of loads: front-end and back-end. Front-end loads are charged when you purchase the investment, while back-end loads are charged when you sell.

Management fees are charges that investment managers charge for their services. These fees cover the costs of running the investment, such as research, administration, and marketing.

Account fees are charges that you pay to maintain your account with a broker or other financial institution. These fees can cover costs such as account maintenance, transaction costs, and inactivity fees.

Transaction fees are charges that you pay when you buy or sell investments. These fees can vary depending on the type of investment, the size of the transaction, and the broker or financial institution involved.

5. Flat Fee, by Project

Another advisor compensation method is to pay a flat fee for a specific project. For example, if you are looking specifically for a retirement plan, it may make sense to pay a flat fee to have someone else analyze your financial situation and crunch the numbers, and then you can take that information and decide on your next approach. Advisors with specialties often charge flat fees to help you understand all the moving parts and how the investment works with your retirement time horizon. Since a flat fee is not tied to the value of investments, or generated by the purchase of any specific investment, you can feel confident you will receive objective advice. Make sure the fee is quoted upfront, along with a clear description of the services that will be provided.

6. Retainer Fee

If you have a more complex situation, such as ongoing stock options to be exercised, a small business, rental properties, or a need for regular income from your investments, then you may benefit from paying for ongoing advice with the retainer fee model. This type of fee is an annual retainer, paid in monthly or quarterly installments. The advisor provides you with an unlimited number of hours of financial planning and investment advice during the year.

Since a retainer fee is not tied to the value of investments, or generated by the purchase of any specific investment, you can feel confident you will receive objective advice. A potential advisor should be able to tell you the following:

  • What the retainer fee is
  • Whether it’s quarterly or annually
  • The services you get by paying that fee
  • The approximate number of hours you can expect to receive
  • How often you will receive updates
  • What type of access you have to the advisor
  • What happens if you want to end the relationship

Ask Your Potential Financial Advisor for a Detailed Explanation

The compensation method that works best for you depends on your unique situation. For example, if you are buying an investment that you plan on holding for a long time – and will not need ongoing advice, paying a commission may be the most cost-effective method. However, if you have the desire to have someone readily available to update your financial plan and address ongoing questions, a fee structure might be optimal. If you need specific one-time advice for retirement or an investment, you might look for an advisor who charges a flat fee, by project.

The key is that you understand what you’ll be charged for the services you’ll be receiving from the financial advisor. Remember to ask the potential advisor for a clear explanation of how he or she will be compensated and choose some who provides an honest and straightforward answer.

When looking for an advisor, it's important to find someone who you feel comfortable with and who you can trust. Make sure to ask around and get recommendations from friends or family members before making a decision. The most important thing to remember when working with any financial advisor is to always do your own research and never make any decisions without fully understanding the risks involved.

Here are more questions to ask potential financial advisors to make sure you’ve done your due-diligence. After all, peace-of-mind is important when choosing someone you can trust with your finances.



Let us help.

With our trusted network of advisors, we’ll connect you with up to three established planners in your area.

Find an Advisor Near You

Let us help.

With our trusted network of advisors, we’ll connect you with up to three established planners in your area.

Find an Advisor Near You

How Much Does A Financial Advisor Cost

How Much Does a Financial Advisor Cost?

Getting finances in order should be a top priority. Many people don’t know where to start when it comes to planning for their retirement, though, and can get overwhelmed with the process. Hiring an expert is a good idea, but the process of hiring a financial planner or advisor can also be a little daunting.

One of the big questions that comes up is: “How much does a financial advisor cost and is it worth it to hire a professional?” Many people opt to do their personal finances themselves, but the investment of hiring an expert often pays for itself as a financial professional is able to navigate the financial marketplace and choose investments and portfolios that produce strong returns.

No matter if you are already working with one or are trying to figure out if you should hire a financial advisor, these are questions to consider:

Educate yourself on how financial advisors are compensated to discover what makes the most sense for you. Here are the most common ways financial advisors and planners charge fees:

1. Percentage of Assets Under Management (AUM)

Many companies follow this model. If you are considering hiring an advisor who is compensated in this way, it is important to understand if they are providing investment management as well as financial planning. There will be a higher charge if they are providing both services. This type of fee arrangement often leads to an incentive for the advisor to encourage their clients to keep more money invested with them, even if it may not be in the client’s best interest.

You will also need to ask a potential advisor who charges this way if they are:

Since the advisor in this scenario will get a percentage of assets payment as your account value grows, the advisor will make more money. If your account value goes down, they will make less money. In this way, they have an incentive to grow your account and to minimize losses.

This structure can be convenient as fees are debited right from accounts – so no check has to be written and the fees don’t have to come out of the monthly budget. Also, fees debited from IRAs are being paid with pre-tax dollars – which can be great for those in retirement.

A typical asset management fee can range from 2 to 0.5 percent of assets under management per year. Generally, the more assets you have, the lower percentage you can negotiate.

Fees for asset management can range from 2 to 0.5 percent of assets under management each year, depending on the firm and the asset class. The lower your percentage is, the more assets you control.

2. Hourly Rate

If you are a self-starter when it comes to your finances and are willing to implement a financial advisor’s recommendation on your own, the hourly rate model is a great option. Financial advisors and managers who follow this model are not responsible for making the changes or putting in place the financial investments or advice they suggest, so they are not tied to the value of the investments or the purchase of an investment; this means you can feel confident you will receive objective advice.

Just like attorneys, or accountants, hourly rates will vary widely based on expertise, certifications and area of specialty. Expect to pay a higher hourly rate for experienced advisors, or advisors who have an area of specialty. Lower rates will be charged by less experienced advisors.

Hourly rate advisors typically charge between $100 and $300 per hour, with the average rate falling around $150 per hour. However, depending on the advisor's experience and expertise, rates can range from as low as $50 per hour to upwards of $500 per hour.

When considering an hourly rate financial advisor, be sure to ask about their credentials, experience and areas of expertise. Also, ask for a list of references from past clients to get an idea of the quality of advice and service you can expect. Finally, be sure to negotiate the hourly rate upfront to avoid any unwelcome surprises down the road. Working with an hourly rate financial advisor can be a great way to get the advice and guidance you need without breaking the bank. Just be sure to do your homework first to ensure you're getting the best value for your money.

3. Commissions

This is one of the most common payment models for financial advisors. You have to be careful with this model as the financial advisor may have ulterior motives to push specific investments if they get a commission. Basically, their advice can be influenced by the way they are compensated.

Make sure you ask a potential financial advisor for a clear explanation of how they are compensated and whether they receive commissions if you buy the investments or products you recommend. Keep in mind that commissions can take the form of a surrender charge on an annuity, front-end sales load charged on a mutual fund, or as a payment directly to the advisor from the investment company in a non-publicly traded REIT.

4. Fees and Commissions

Many advisors collect a combination of fees and commissions, also known as term fee-based. These advisors have their own model of how they are compensated, so make sure to ask for a breakdown of their costs, both fees and commissions, so you understand where the charges are coming from. Some advisors collect hidden costs in addition to their stated fees or commissions. Hidden fees are often buried in the fine print of investment documents. They can be hard to spot and even harder to understand. Many people don’t realize they’re paying these fees until it’s too late.These may be called 12b-1 fees, trailer fees, or even sub-accounting fees.

Commissions are fees that you pay when you buy or sell investments. Some advisors receive commissions for selling certain products, such as mutual funds. The commission is paid by the investment company, not directly by you; however, the cost of the commission is built into the price of the investment. Over time, these costs can add up.

12b-1 fees are charges that mutual fund companies pay to brokers or other intermediaries to market and sell their funds. These fees are paid out of the assets of the fund and can be charged every year, regardless of how well the fund performs.

Load fees are charges that you pay when you buy or sell certain types of investments, such as mutual funds. There are two types of loads: front-end and back-end. Front-end loads are charged when you purchase the investment, while back-end loads are charged when you sell.

Management fees are charges that investment managers charge for their services. These fees cover the costs of running the investment, such as research, administration, and marketing.

Account fees are charges that you pay to maintain your account with a broker or other financial institution. These fees can cover costs such as account maintenance, transaction costs, and inactivity fees.

Transaction fees are charges that you pay when you buy or sell investments. These fees can vary depending on the type of investment, the size of the transaction, and the broker or financial institution involved.

5. Flat Fee, by Project

Another advisor compensation method is to pay a flat fee for a specific project. For example, if you are looking specifically for a retirement plan, it may make sense to pay a flat fee to have someone else analyze your financial situation and crunch the numbers, and then you can take that information and decide on your next approach. Advisors with specialties often charge flat fees to help you understand all the moving parts and how the investment works with your retirement time horizon. Since a flat fee is not tied to the value of investments, or generated by the purchase of any specific investment, you can feel confident you will receive objective advice. Make sure the fee is quoted upfront, along with a clear description of the services that will be provided.

6. Retainer Fee

If you have a more complex situation, such as ongoing stock options to be exercised, a small business, rental properties, or a need for regular income from your investments, then you may benefit from paying for ongoing advice with the retainer fee model. This type of fee is an annual retainer, paid in monthly or quarterly installments. The advisor provides you with an unlimited number of hours of financial planning and investment advice during the year.

Since a retainer fee is not tied to the value of investments, or generated by the purchase of any specific investment, you can feel confident you will receive objective advice. A potential advisor should be able to tell you the following:

Ask Your Potential Financial Advisor for a Detailed Explanation

The compensation method that works best for you depends on your unique situation. For example, if you are buying an investment that you plan on holding for a long time – and will not need ongoing advice, paying a commission may be the most cost-effective method. However, if you have the desire to have someone readily available to update your financial plan and address ongoing questions, a fee structure might be optimal. If you need specific one-time advice for retirement or an investment, you might look for an advisor who charges a flat fee, by project.

The key is that you understand what you’ll be charged for the services you’ll be receiving from the financial advisor. Remember to ask the potential advisor for a clear explanation of how he or she will be compensated and choose some who provides an honest and straightforward answer.

When looking for an advisor, it's important to find someone who you feel comfortable with and who you can trust. Make sure to ask around and get recommendations from friends or family members before making a decision. The most important thing to remember when working with any financial advisor is to always do your own research and never make any decisions without fully understanding the risks involved.

Here are more questions to ask potential financial advisors to make sure you’ve done your due-diligence. After all, peace-of-mind is important when choosing someone you can trust with your finances.