Financial Advisor Cost | Fee Structures & Average Cost Backed by Data (2024)

Fee Structures of Financial Advisors

Financial advisors assist clients in developing long-term plans for increasing wealth, controlling risk, and various other financial decisions and challenges. To do so, they have differing services and fee structures.

We analyzed all 19,490 Form ADV filings registered with the SEC as of 2023. Below is a table of what percentage of firms offered that fee structure:

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Percentage of Assets Under Management (AUM)

This fee structure charges a percentage of the assets under management by the firm. Fee structures are often tiered based on the amount of assets managed, with higher AUM often charged a lower rate.

Typical Cost: Between 0.50% and 2.00% of assets under management (annually), often lower for a robo-advisor. Fees are typically charged quarterly by the firm and will show on your investment statement.

How Common: ~96% of registered firms offer this fee structure

Example: If you have $1 million managed by a firm at a 1% management fee, you would be charged $10,000 / year to manage your assets (or $2,500 per quarter). This would be automatically deducted from your investment portfolio.

Hourly

Similar to an attorney, a financial consultant might charge fees based on hourly rates. This fee structure can be advantageous when seeking specific or ad hoc advice.

Typical Cost: Charges generally span from $150 to $400 per hour, depending on the extent of the services required.

How Common: ~33% of registered firms offer this fee structure

Example: If you needed hourly consulting to sell a business or transfer your estate to your children but did not want your assets managed by a firm, you could consult a firm at an hourly rate to answer any questions you may have.

Fixed Rate

Fixed fees are a one-time, lump-sum payment rendered for a specific service, such as creating a financial plan without ongoing management or implementation. This option is beneficial if you solely require guidance for a particular objective rather than a long-term consultancy or asset management.

Typical Cost: Fixed fees for creating a financial plan often range from $1,000 to $3,000.

How Common: ~49% of registered firms offer this fee structure

Example: If you did not want a firm to manage your assets but needed to create a retirement plan, life transition plan such as divorce or loss of a spouse, estate transition plan, business financial plan, or any other financial planning, you could consult with an RIA firm to help you with the creation of that plan.

Commissions

Occasionally, advisors are compensated through commissions by selling certain financial products, such as mutual funds or life insurance policies, or as a broker-dealer by facilitating the buying and selling of securities. Advisors who receive commissions may be incentivized to make specific suggestions to clients in order to secure a commission. Advisors who operate on a fee-only basis do not earn commissions, whereas fee-based advisors may do so.

Typical Cost: Often 3% - 6% of the value of the security

How Common: Only ~3% of registered firms say they offer this fee structure, but other advisors may receive “soft dollars.” Many mutual funds charge 12b-1 fees to cover the promoting and selling of the fund’s shares. While your advisor does not charge these fees, they may receive a kickback for recommending the investment.

Example: An advisor selling their client on a life insurance policy and receiving a commission on the sale of that policy, or recommending a specific investment and receiving a kickback for that recommendation.

Performance-Based

Advisors typically obtain performance-based fees if a portfolio surpasses a predefined benchmark. This fee is determined through various methods, but is most commonly assessed as a percentage of investment gains. Performance-based fees may incentivize advisors to undertake riskier decisions in pursuit of generating higher returns.

Typical Cost: “Two and Twenty” is common among hedge funds with a 2% management fee and a 20% incentive fee above the “hurdle rate,” or performance threshold the fund is compared against.

How Common: 32% of registered firms offer this fee structure

Example: A hedge fund earns a 15% return with a 20% performance fee in above the performance of the , which grew 7% that same year.

20% of fund growth in excess of S&P 500’s 7% growth for that year = 15% hedge fund growth - 7% S&P 500 growth = 8% difference x 20% = 2% performance fee (in addition to the management fee)

Subscription

Firms charge this fee for offering educational resources, such as a monthly periodical. This arrangement is helpful if you aspire to independently learn about investing or financial management.

Typical Cost: Anywhere from $10 - $800 per month depending on the level of educational resources offered by the firm. Firms often include financial education as a benefit to clients whose assets they manage.

How Common: <1% of registered firms offer this fee structure

Example: For $50 per month, a client can subscribe to an educational periodical that teaches the fundamentals of investing.

Miscellaneous

Firms occasionally offer unconventional fee structures when charging clients. For more detailed information about a firm’s specific fee structures, please refer to their Form ADV and Part 2 Brochure.

Average Cost of Financial Advisors

The average cost of working with a financial advisor in 2023 is 0.5% to 2.0% of the assets they manage, $200 to $400 hourly consultation, a flat fee of $1,000 to $3,000 for a one-time service, a 3% to 6% commission fee on the products that they sell.

These estimates vary widely by firm and service offering.

Ways to Minimize Financial Advisor Fees

There are ways to lower the cost regardless of your financial advisor's fee structure. Here is some advice:

Choose an Appropriate Fee Structure

The fee structure should align with your financial needs. Consider the type of advice you seek, the number of times you will be consulting them, and the complexity of your financial situation.

You can use negotiating tactics such as asking for a lower rate or including additional services in the agreement. Feel free to ask for a better deal.

Research and Compare Fees

It is essential to research and compare different advisors' fees thoroughly. Be sure to read the fine print for details on any additional costs that are not in their base fee.

Monitor Your Investments Regularly

When you monitor your investments regularly, you can identify potential problems before they become costly. In this way, you can keep your financial advisor fees in check.

Robo-Advisor Fees vs Traditional Advisor Fees: Which Is For You?

The choice of advisor depends on the type of assistance you require and your financial resources. Traditional advisors are often more expensive than online alternatives.

For simple investment goals, Robo-advisors may be a cost-effective option. They charge lower fees than conventional advisors and provide an automated, algorithmic approach to managing your investments.

On the other hand, if you have more complicated investment goals or require advice about non-investment-related matters, then a traditional financial advisor may be the better option. They provide personalized advice.

Both advisors offer portfolio management, but only conventional financial advisors cater to services related to estate, insurance, and retirement planning. Make sure to know what services you need.

Traditional advisors usually charge higher fees. Their average AUM percentage is 0.5% to 2.0%, while Robo-advisors are less than 0.5%.

How to Choose a Financial Advisor

Working with a financial advisor is a sensible option for anyone who wants to organize their money and establish long-term goals; they are not just for the wealthy. To locate the ideal financial advisor for your requirements, follow these steps.

Step 1: Understand What Financial Services You Need

It is essential to understand the services you require from a financial advisor before deciding. Consider your current financial goals and needs to define the advice you are looking for.

Step 2: Select Which Type of Financial Advisor You Need

Financial advisors can have different specializations, from those offering retirement planning to those focusing on estate planning or tax advice. Choose an advisor that can meet your needs and has the experience and qualifications you are looking for.

Step 3: Consider How Much You Can Pay

The cost of financial advice varies greatly depending on the type of services you need, the advisor's experience, and the advisor's fee structure. Make sure you understand the costs associated with each service. Your capacity to pay is an essential consideration before deciding.

Step 4: Research Financial Advisors

Once you have a list of potential advisors, research their credentials and experience. Ask friends or family members for recommendations. Explore their websites to see their services, read reviews, and learn more about their background.

Step 5: Interview Multiple Financial Advisors

Interviewing multiple advisors is essential to ensure you find the right fit. Ask questions about their experience and services, fees, and any other information you feel is necessary. Pay attention to how they communicate with you and get references from past clients.

Final Thoughts

Financial advisors are professionals who offer an extensive range of services to help manage your finances. The cost of hiring an advisor depends on the services you agree to.

Financial advisors' most common fee structures include AUM percentage, hourly rates, flat fees, and performance-based fees.

In 2023, the average cost of getting financial advisor services is expected to be 0.5% to 2% of your AUM. Consultation with them would cost $200 to $400 per hour.

Financial advisors charge a flat fee of $1,000 to $3,000 for a one-time service. They impose a 3% to 6% fee on the products they sell for commission based.

It is essential to carefully research and compares fees before selecting a financial advisor. You may also negotiate and ask for a lower fee or additional services included in the agreement to make the most of your money.

To select the right financial advisor, you need to understand what services you need and research potential advisors. Consider the amount you can afford to pay and thoroughly interview multiple financial advisors before selecting one.

By following these tips, you can guarantee that you make the most out of your financial advisor at the best possible rates. Understanding your options and using negotiation strategies will help minimize the cost of working with a financial advisor.