How Much Does a Financial Advisor Cost? – The Complete Guide
Financial Advisor Cost
There are three primary ways to determine the fees of a financial planner: hourly, fixed, and percentage of assets.
Listed below are three typical fee structures for financial planners. A financial advisor’s fee depends on the scope of the plan and the time involved in developing it.
To avoid a high fee, be sure to plan for scope creep, or all the unexpected plans you didn’t account for.
The FPA report outlines the costs associated with these three different fee structures. To compare, see the average fees for different types of financial plans.
The hourly cost of financial advisors varies widely. Some charge a flat fee per client account, some are free, and some offer services for a monthly or annual subscription fee.
The fee can range from $50 per month to over $500 per year.
Subscription services usually charge a one-time fee for getting started and monthly fees to continue the relationship.
These services include annual meetings, review meetings, and some 1:1 time with an advisor.
The more you pay, the more time you will have with your advisor.
Fee-only financial advisors are usually independent of brokerage firms and insurance companies. They are legally bound by fiduciary duty and work only for their clients’ best interests.
Fee-only financial advisors may charge different fees than hourly-rate advisors. In general, hourly rates for these services will be higher than those for traditional financial advisors.
While hourly fees are generally the most straightforward method of payment, there are a number of exceptions.
While some financial advisors do not charge a fee based on the amount of assets they manage, others do charge an annual or monthly fee for advisory services. These fees can range anywhere from $50 per month to $500 per month.
For subscription services, you pay a one-time fee to get started and a monthly or annual fee for ongoing service. Subscription services generally offer limited annual meetings, periodic reviews, and one-on-one time with the advisor.
These fees can also vary significantly over time.
The fee for a fixed cost financial advisor may be more affordable if you need advice for a single-off transaction, such as a one-time estate sale.
However, if you need a large amount of financial planning, you may want to consider hiring an hourly advisor. While they may be cheaper initially, you could end up paying more over time if you need help in a specific area.
Moreover, fixed-cost financial advisors may require a small retainer before they start working with you.
Percentage of assets
The percentage of assets under the management of a financial advisor has increased steadily in recent years.
Between 2014 and 2017, 63% of advisors had assets under their advice. In the same period, 46% of households had some fee-based business.
A majority of these households also maintained transactional accounts. Nevertheless, the percentage of asset-based fees has increased over the past few years. Hence, the percentage of fee-based revenues in the wealth management industry is increasing.
Many robo-advisors and online financial planning services use the AUM model.
While some traditional advisors don’t take on clients with less than $250,000 in assets, a median fee for a human financial planner is around 1% of assets managed annually.
AUM fees start out higher for smaller accounts, and decrease as the balance grows. Some advisors provide full financial planning, while others only handle investment management.
While it may seem that commission-based fees are the only way to pay a financial advisor, that is not necessarily true. Those who have a small portfolio or who don’t plan to have a financial advisor for the long term should opt for a fee-based arrangement.
This will avoid potential conflicts of interest if an adviser fudges their hours or isn’t very helpful.
In addition, commission-based fees tend to be more democratic, as they don’t depend on the size of the portfolio.
The first layer of fees is the sales charge, which pays for time spent in procuring funds and investments. A fee of this kind is usually between 0.75% and 1% of the total assets under management.
The second layer is a performance fee, or “Asset Under Management,” and compensates the advisor for helping clients grow their wealth. This type of fee can be spread out over several quarters, so the fees can vary widely.
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