How Much a Financial Advisor Costs
Financial advisors can be pricey. But it depends on what you need. We explain how much you can expect one to cost and ways you can pay less.
When it comes to managing your money, hiring a financial advisor is a wise choice. But you may be wondering how much they cost, even just for small projects. It’s important you know what to expect to pay before hiring a professional to help.
A good advisor has plenty of experience and credentials to legitimize their expertise. However, this can mean a sizable price tag if you want to hire them. Before looking for a professional, be aware that they may not be cheap, especially if you have complex needs to address.
Financial professionals typically charge on a fee-only or commission basis. But these fee structures can be complicated to keep track of. In this article, we’ll explore how much an expert will charge, hidden or additional costs to consider, and how you may be able to pay less.
When you hire an expert, they’ll typically charge in one of two ways. Most accredited professionals, such as registered investment advisors (RIAs) and certified financial planners (CFPs), charge on a fee-only basis. Others (usually broker-dealers) do so on a commission basis.
Below is an in-depth look at how various financial advisors structure their fees:
Assets Under Management (AUM) Fees
Often, advisors charge a fee percentage based on your assets under management (AUM). Depending on your AUM, the percentage will go up or down. Those with more assets will receive a lower percentage while having less means you’ll pay a higher rate. Typically, you’ll see professionals like investment or wealth managers charging in this way.
The percentage you’ll pay depends on who you hire. However, most regularly charge around 1% of AUM for their services. As an example, let’s say you have $1,000,000 in total assets. If your advisor charges you 1% annually, you’d pay $10,000.
You may also encounter experts that charge a flat rate. These are professionals that charge a fixed rate for their services. They do this without regard for your assets or products you purchase (like with a commission-based advisor). Services they offer may either be one-time or ongoing, including:
- Cash flow planning
- Estate planning
- Investment management
- Retirement planning
- Risk management
- Tax planning
How much you end up paying depends on the advisor and the complexity of your needs. For instance, getting some help with one area of your finances, such as taxes, won’t cost as much as devising a comprehensive plan that encompasses everything else as well.
When you work with a flat fee advisor, the two of you will decide how often or how much you pay beforehand. This allows for transparency between both parties. You’ll also know that there aren’t any conflicts of interest present.
Much like a flat-fee advisor, you can hire someone on an hourly basis. This is as simple as it sounds. You pay someone per hour for various services. Financial experts can charge anywhere from $200 to $400 per hour.
An hourly rate is usually for consultations or a less complex service. Larger, more time-consuming projects may require an AUM or flat rate.
Another payment model is when you pay an annual retainer. This is where you pay upfront for future services. The amount you spend may not be equal to what the services end up costing. In this case, you’d likely receive a refund for the difference. However, you’ll need to work this out initially with your advisor.
Finally, you can opt to choose a commission-based financial advisor. These charge you a commission on products or investments you buy based on their advice.
While these advisors advertise themselves as being “free,” there are risks. They’re not fiduciaries. So, products or investments they recommend may not be in your best interest. And there’s a clear conflict of interest when they stand to benefit from what you buy.
How Fiduciaries Charge Clients
A fiduciary is a financial advisor that prioritizes your best interest with anything they do. When they charge clients, they use a fee-only structure. This means you may pay a flat rate, hourly, as a retainer, or based on your AUM. Typically, they won’t charge on a commission basis. This is because of the potential for conflicts of interest.
Fee-only fiduciaries cost more than commission-based advisors. This is because they require you to pay either upfront or on a schedule. The latter doesn’t, but that’s because their income relies on you buying certain products.
Minimum Investment Is Also a Factor
When you hire a financial expert, you should also consider the minimum investment required to do so. Often, investment and wealth managers, as well as robo-advisors, have a minimum amount of assets before you can work with them. If portfolio or wealth management is what you need, this is an important element.
The minimum investment amount can vary by company. For example, Fidelity, a popular wealth management option, requires at least $2M in assets. Meanwhile, Charles Schwab requires $1M or more. However, a robo-advisor has a much lower barrier to entry, with some, like Wealthfront, requiring as little as $500 to begin.
Additional Costs to Consider
Fees aren’t the only costs you may incur while working with a financial advisor. There are “hidden” expenses to consider. For the most part, additional expenses are ones that you, with investments you make, are responsible for.
A primary example of an additional cost is when you buy certain securities, such as mutual or index funds. Buying either incurs a recurring fee. Austin Scott, a CFP with Pinnacle Ascent Wealth Management in Washington state, warns that “mutual funds have internal fees for management, marketing and trading, just to name a few, that are then passed on to the investors. In many cases, these are upwards of 2-5% inside the fund as an expense ratio.”
Also, when you sell any assets for a profit within a brokerage account, you’ll have to pay capital gains taxes. These are both indirectly related to working with an advisor, as they may be a consequence of activities they recommend.
How to Reduce Fees
Let’s face it, hiring a financial expert can be expensive. Before you commit to hiring one, it’s smart to see if you can pay less for the same quality. This isn’t always easy, but you can follow a few methods to try and do so:
- Negotiate. An advisor’s fee structure isn’t always set in stone. It never hurts to negotiate costs, especially if you see better deals elsewhere.
- Compare local advisors. Avoid just going with the first professional you find. It’s wise to compare a handful of them based on price, quality, and services to see what’s best for you.
- Know exactly what you need. Having an idea of what you want to accomplish before working with an advisor helps minimize unnecessary costs. If you go in blind, you may end up paying for services you don’t need.
Robo-Advisors Are a Cheap Alternative
You might benefit from hiring a robo-advisor if a human expert is too much to spend right now. These use advanced algorithms and data science to help you build a portfolio. And they often are much cheaper while also requiring a very small minimum investment.
Robo-advisors are especially useful if you’re a new investor without a ton of money. They have a low barrier to entry by being cheap and requiring a small amount of cash to begin investing.
However, with a robo-advisor, you forego most human interaction. This means no real-world experience and expertise of an in-person professional. If the idea of getting advice from a computer bothers you, it may be better to stick with a real person.
Finding a Financial Advisor
Finding a good advisor can seem daunting, but it doesn’t have to be. Before you start your search, you need to know what you want to accomplish. For example, hiring a financial planner is a smart choice if you have long-term goals you want to accomplish. Or, if you have substantial assets, hiring a wealth manager may be right.
Then, you’ll want to find someone you can trust with your assets. Often, these are fiduciaries with verified credentials, such as:
- Certified financial planners (CFPs). These are experts that help with tasks like retirement planning, tax planning, risk management, investment management, and more. They must pass a rigorous exam and have at least 4,000 hours of experience.
- Registered investment advisors (RIAs). RIAs are registered with the SEC. They give investment advice and recommendations for compensation.
- Chartered financial analysts (CFAs). These professionals specialize in investment analysis and portfolio management. To become a CFA, one must complete 900 hours of self-study, have 4,000 hours of work experience, and pass three exams.
To easily find professionals in your area, you may use a free matching tool. After filling out a detailed form, it will match you with up to three vetted financial advisors that fit your needs.
Frequently Asked Questions
Can I negotiate fees with a financial advisor?
Yes, you can negotiate fees. They may not always be receptive, but it’s worth a try. You may also be able to work with them to decide on a payment schedule that works best for you.
Per Scott, you can also “work with the advisor in many cases to reduce some of the additional fees or internal fees, whether that is in the planning process or asset management process.” In other words, it’s important to be attentive to what you’re paying for when you’re working with a professional.
Is hiring a financial expert worth the cost?
This depends on your situation. Having assets on hand or being a high earner may be reasons to hire an expert. You may also have had a big life change, such as a marriage or having kids. In this case, hiring someone to help can be advantageous. Ultimately, it depends on what you need to accomplish and your comfort level with your money.
Are advisor fees tax deductible?
Unfortunately, financial advisor fees are no longer tax deductible. This is due to the Tax Cuts and Jobs Act (TCJA), which removed the ability to use investment-related expenses as itemized deductions on your taxes.
What is a fee-only financial professional?
Fee-only advisors are those that charge you for their services, rather than a commission, for their services. This may be any of the following:
- Annual retainer
- Assets under management (AUM) percentage
- Flat rate
- Hourly rate
Also note that fee-only advisors are fiduciaries. These are professionals that put your best interest ahead of their own at all times.
How much do finance experts charge per hour?
They can charge $200 to $400 an hour on average. However, the exact rate depends on who you decide to hire. Also, commission-based advisors may even describe themselves as being “free,” however they may be more likely to suggest products that aren’t in your benefit.
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