A financial advisor’s cost depends on the fee structure that they use. No one wants to pay excessive fees or costs in connection with financial advice and planning, but it can be hard to pin down what you’re actually paying for, even if you have a good grasp of your quarterly statements. It all comes down to whether you have a financial advisor you can trust — or someone who is merely doing business with you for their own gain.
Read Next: 7 Reasons You Should Consider a Financial Advisor — Even If You’re Not Wealthy
There’s nothing wrong with asking about what a financial advisor does and what they charge for their work. Asking these questions will help you determine whether financial advisor costs are worth it.
How Much Does a Financial Advisor Cost?
The cost of working with a financial advisor varies depending on the services you need. According to AdvisoryHQ, certified financial planners or investment advisors charge fees for a variety of services including asset management, managed accounts, portfolio management, CFP, retirement planning funds or wealth management fees.
Here are sample fees you might encounter, according to averages cited by AdvisoryHQ.
Average Financial Advisors Fee Estimate
|
Initial Investment Amounts |
Average Advisor Fee Percentage |
Annual Averages |
|---|---|---|
|
$50,000 |
1.18% |
$590 |
|
$100,000 |
1.12% |
$1,120 |
|
$150,000 |
1.09% |
$1,635 |
|
$250,000 |
1.07% |
$2,675 |
|
$500,000 |
1.05% |
$5,250 |
|
$1,000,000 |
1.02% |
$10,200 |
|
$1,500,000 |
0.94% |
$14,100 |
|
$2,000,000 |
0.91% |
$18,200 |
|
$2,500,000 |
0.88% |
$22,000 |
|
$5,000,000 |
0.84% |
$42,000 |
|
$7,500,000 |
0.77% |
$57,750 |
|
$10,000,000 |
0.69% |
$69,000 |
|
$20,000,000 |
0.65% |
$130,000 |
|
$30,000,000 |
0.59% |
$177,000 |
Factors Influencing Financial Advisor Fees
The cost of a financial advisor can depend on several factors, including the type of advisor and the fee structure they use. Traditional financial advisors often offer a range of fee models, from assets under management to flat or hourly rates, while robo-advisors and hybrid models tend to have simpler, lower-cost fee structures. Here’s a breakdown of the various fee options and how they might affect financial advisor costs.
1. Percentage of Assets Under Management
The percentage of assets under management fees makes up the most common fee structure today. Under AUM, financial advisors charge clients an annual percentage of the assets being managed. The smaller the number of your assets, the higher the fees. Expect to pay somewhere between 0.50% and 2%.
For example, a client with a $100,000 investment might incur an average AUM fee of 1.12% or $1,120 per year, according to AdvisoryHQ, whereas the average annual fee for a client with a $2 million investment would be 0.91% percent or $18,200. Fees can range from $590 to $177,000 per year, depending on the amount of AUM.
These average fees include record keeping, accounting services, trading, due diligence, financial planning, investment advice, tax management, portfolio rebalancing and monitoring.
In addition to AUM, financial advisors may use other fee structures to charge for their services. This includes flat annual fees based on investment amounts, hourly rates for individuals who need specific services and per-plan fees that combine several services. These financial advisor fee comparisons can vary depending on the part of the country you’re in and factors like active or passive management.
2. Annual Retainer
The annual retainer fee is partially based on your assets under management, but it also factors in the complexity of your finances. The advantage of paying an annual retainer is having access to the financial services you need when you need them. This fee structure is well suited for people who are looking to build a long-term relationship with their financial advisor with the goal of increasing their wealth over time.
You can expect to pay anywhere from $6,000 to $10,000 annually for a retainer; the actual financial advisor cost will depend on the financial advisor you choose and their location, as well as your specific needs.
3. Fixed or Flat Rate
The fixed or flat rate fee is also based on AUM, but instead of the fee structure being based on the percentage of AUM, the fee structure will be based on a fixed-fee bracket. The fixed/flat rate fee structure may be more or less expensive than a fee based on the percentage of assets based on management, so make sure to compare the two.
You can expect to pay an average flat rate of $2,000 to $4,000 for a single financial session, according to Barron’s, plus $200 to $400 per hour for additional service. An annual fee of $7,500 to $55,000 could apply for fixed/flat-rate services. The average fixed/flat fee for AUM of up to $499,999 is $7,500, AdvisoryHQ noted.
4. Hourly Rate
Hiring a financial advisor with an hourly rate makes sense in certain situations when you need a one-time service, such as a review of your 401(k) or assistance with estate planning. Average hourly fees for a financial advisor range from $200 to over $500 per hour. If you need ongoing services, however, finding a financial advisor who charges a fixed/flat rate or percentage fee structure would be more cost-effective.
5. Package Fee
Some financial advisors offer package fees to clients for advice on specific topics, such as retirement, taxes, college and assets. There is no data available on an average package fee; the actual fee will depend on the specific financial advisor offering the service.
Depending on what you need help with, a package fee may be more affordable than an hourly rate for the same services.
6. Robo-Advisor
A robo-advisor is a virtual platform that uses computer software to manage money and investments. Robo-advisors work by collecting information from the client and using an algorithm to match the client with products.
These automated services cost less than human financial advisors and may be worth the savings if you don’t need customized service and unlimited access to your advisor. You can expect to pay 0.25% to 0.50% of your account balance in robo-advisor fees each year.
Hybrid Robo-Advisor
Another type of financial advising is the hybrid robo-advisor model. With this service, you’ll have access to a virtual robo-advisor platform and a real-life financial advisor.
Meetings with the human financial advisor often take place by phone or video conferencing, which is typically less costly than meeting in person with a traditional financial advisor. Fees will depend on the particular firm you use and can be based on AUM or a flat monthly fee.
Are Financial Advisor Fees Worth the Cost?
Determining whether a financial advisor is worth the cost is a personal decision that depends on your financial goals and needs. Yes, you have to pay for their services, but you’re paying for their expertise and understanding of the financial industry. They have the ability to objectively review your financial plans and offer advice that can potentially save you money and build wealth over your lifetime. Ultimately, the cost of a financial advisor should align with your needs and the value they bring to your financial strategy.
Final Take To GO
The right advisor can save you time and money. When you have clearly defined goals, it’s easier to identify the best products and services. For example, if you have a financial plan in place and need someone to review it, you may not need to pay for full-service management. On the other hand, paying an hourly rate may not make sense if you like the ability to pick up the phone and call your advisor every time you have a question.
FAQ
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What is the normal fee for a financial advisor?
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Financial advisors use a variety of fee structures, from a percentage of your assets under management, to commission, to hourly rates and retainers, so there really is no standard fee. But you can expect to pay $2,000 to $4,000, on average, for one financial planning meeting, or $200 to $500 per hour for specialized services.
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Is it worth paying for a financial advisor?
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Whether or not it’s worth paying for a financial advisor depends on your current financial situation. They can be beneficial to help you with such things as asset management, managed accounts, portfolio management, financial planning, retirement planning funds or wealth management.
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How much money should you have before using a financial advisor?
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You should have enough money where you feel comfortable paying the fees. Financial advisors can be split into two groups: fee-only and commission-based. The National Association of Personal Financial Advisors requires all of its members to use a fee-only pay structure. This pay structure provides greater transparency and reduces conflicts of interest that can interfere with the fiduciary role.
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Since fee-only financial advisors don’t earn a commission on their work, like commission-based financial advisors do, they have the incentive to do what’s best for each client’s personal situation. You can find a fee-only fiduciary financial advisor through NAPFA
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What is the difference between a financial planner and a financial advisor?
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Where a financial planner is more for creating and coordinating comprehensive financial plans, while a financial advisor advises on how you can invest that money wisely within those plans. That being said, financial planners also may sell commission-based products such as life insurance which often require a license from their state regulatory agency.
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Caitlyn Moorhead and Daria Uhlig contributed to the reporting of this article.
Data is accurate as of Oct. 18, 2024, and is subject to change.
This article originally appeared on GOBankingRates.com: How Much Does a Financial Advisor Cost?
