How Much Does a Financial Advisor Cost? (2024)

How Much Does a Financial Advisor Cost? (1)

As you strive to reach your financial goals and prepare for retirement, you may consider turning to a financial advisor. In this case, knowing how much a financial advisor’s services normally cost is crucial. Depending on the size of your investment, financial advisors typically charge a fixed-rate fee between $7,500 and $55,000, or 1.02% of assets under management (AUM) for ongoing portfolio management, according to a 2021 study by Advisory HQ. Of course, fee rates and compensation structures differ from advisor to advisor. That can make it challenging to figure out how much you’re paying and if you’re getting a fair deal when you’re trying to find a financial advisor.

Breaking Down Financial Advisor Fee Structures

There are five main ways that registered investment advisors charge for their investment advisory services. The table below breaks them down:

Types of Financial Advisor Fee Structures

Fee TypeDescription
Percentage of Assets Under ManagementPercent of the total assets of a client’s account, which could follow a tiered schedule. Generally speaking, the higher your asset level, the lower the percentage fee you’ll pay.
Hourly ChargesThe rate charged per hour, is typically for a special project or consulting.
Fixed FeesPredetermined amount paid for a service, such as the creation of a financial plan.
CommissionsAdditional compensation is earned when a purchase or a trade is made.
Performance-Based FeesAn additional fee is charged if a defined benchmark is outperformed.

Advisors may charge one of these fees or a combination of them. Fee-only advisors earn money exclusively from fees paid by their clients. They don’t earn commissions or other types of compensation from selling certain financial products or trading specific securities. Fee-only advisors can still have potential conflicts of interest, though they must disclose them.

Fee-based advisors, on the other hand, earn money both from the fees their clients pay, as well asthird-party commissions and other forms of compensation. This happens when an advisor is dually registered as a broker-dealer or insurance agent, allowing them to sell affiliated products, investments or policies for compensation. This can present a potential conflict of interest that needs to be disclosed, though fee-based advisors still abide by fiduciary duty.

How Much Do Financial Advisor Fees Typically Cost?

When it comes to financial advisor fees, most firms charge based on a percentage of assets under management (AUM) for ongoing portfolio management. According to a study byAdvisory HQ News Corp, the average financial advisor fee in 2021 was 1.02% for $1 million AUM, which adds up to $10,200 annually.

This is up from past years when anotherstudy by RIA in a Boxsaid that the average financial advisor fee is 0.95% of AUM, which for a $1 million account would amount to roughly $9,500 per year. Fees are often assessed quarterly, though, so your advisory fees may be divided up into fours.

Asset-based annual fees may decrease as the size of the account increases, ensuring that high-net-worth individuals are still paying a fair rate. However, this also means that fees will be higher for those with lower account values. The average AUM fee for a $50,000 account is 1.18%, or $590 a year, again according to Advisory HQ’s previously mentioned study above.

Fixed fees and hourly fees typically apply to financial planning or consulting services, as well as special projects. Fixed fees typically range from $7,500 (for investments under $499,999) to $55,000 (for investments over $7.5 million). Hourly fees can be anywhere from $120 to $300 an hour, depending on the advisor and the complexity of the project.

How Much Do Financial Advisors Make Off Your Money?

The table below breaks down the average fee rates for the three most common financial advisor fee types:

Average Financial Advisor Fees by Type

Fee TypeTypical Cost
Percentage of AUM0.59% – 1.18% per year
Fixed Fees$7,500 – $55,000
Hourly Fees$120 – $300 per hour
All figures above come from Advisory HQ’s 2021 report. Advisors on the SmartAdvisor Match Platform that you may be matched with may charge higher fees than those shown above. Please carefully review fee structures with your investment advisor and review your advisor’s Form ADV and CRS.

One of the most popular financial advisor certifications is the certified financial planner (CFP) designation. These professionals specialize in many areas of financial planning, such as retirement, insurance, estate planning, taxes and more. However, they also reportedly charge higher fees than financial advisors without the CFP title. In fact, according to astudy by Kitces, CFP professionals charge a median of $500 more for a comprehensive financial plan than their non-CFP counterparts.

Other Financial Advisor Costs You May Encounter

How Much Does a Financial Advisor Cost? (2)

The financial advisor cost might not be all you pay when opening an account. In addition to paying the advisor, you’ll also be responsible for brokerage, custodial and other third-party fees. For instance, if a financial advisor uses mutual funds or exchange-traded funds (ETFs)in your account, you’ll have to pay costs associated with those funds in addition to the fee that you pay your advisor.

These costs can add up. The average cost of a mutual fund is 1.25%, though low-cost funds can cost less than 0.50%. A 1% mutual fund fee can cost a young investor as much as $590,000 over 40 years. When discussing fees with your financial advisor, you should be sure to ask about any additional costs you may incur.

Where to Find Info on Financial Advisor Fee Schedules

To figure out the financial advisor costs you may be charged, look at the firm’s Form ADV (SEC-filed paperwork). On this form, a firm must clearly note each fee type that it charges for its investment advisory services. Specifically,in Section 5, the firm must check off each type of fee that it charges clients for its investment advisory services.

In Part II of Form ADV (also called the firm’s brochure), the firm will provide greater detail on its fee rates and their applicable brackets. That includes information on whether the firm earns money in any way aside from client fees. The brochure will also include specifics on how the firm calculates fees.

Are Financial Advisors Worth Paying?

There are plenty of pros and cons to working with a financial advisor, especially depending on the type of service you’re looking for. For the most part, financial advisors offer you a breadth of experience to help protect and grow your assets. They can help with a number of things from investing to retirement and estate planning. If they can protect you from a significant loss or help your assets grow significantly then it is probably worth the cost.

If you’re uncertain about any of these activities when it comes to your money then a financial advisor may be worth their fees to you. A financial advisor can even grow with you as you have a new turning point in your life that requires a fresh financial perspective. For example, having a child changes your mindset.

The real key to making sure you feel like the fees of a financial advisor are worth it is whether the fees are fair or not. You don’t want to overpay for services and in many cases, you may want to only pay for results. Understanding and agreeing to payment terms is important to how worth it to you the cost is going to be.

Making Sure Your Financial Advisor Fees Are Fair

Before you agree to work with an advisor, make sure you understand the advisor’s fee structure and what services that fee includes. Some advisors may charge extra for certain services and programs. It shouldn’t be difficult for an advisor to explain how he or she is adding value to your accounts.

If an advisor gives a roundabout or elusive answer, steer clear. It’s a red flag if an advisor tells you not to worry about costs. Ditto if he or she implies that his or her services are free. If an advisor makes money from commissions, be sure to inquire about his or herfiduciary responsibility to put your best interest first.

You should know all of an advisor’s compensation sources, and if there are any other professionals they work with. Some advisors include tax-planning services without an additional cost, but many partner with accounting firms for all tax-related work. That means tax and legal services may incur an additional cost.

How to Minimize Financial Advisor Fees

Generally, investors with fewer assets under management pay a higher percentage of their assets in fees. Think hard about whether a traditional advisor is right for your situation or if you might be better served by a robo-advisor. Robo-advisors generally have lower fees and lower minimums.

If you decide a traditional, human advisor is right for you, there are two typical fee structures: fee-only and fee-based. Fee-only advisors’ fee structures tend to be simpler than their fee-based counterparts and hold less potential for possible conflicts of interest as they are not dually registered as either broker-dealer representatives or insurance agents. Fee-only advisors can still have potential conflicts of interest too though, and they’re required to disclose them just like fee-based advisors.

As you’re shopping around for an advisor, ask pointed questions about advisors’ fee structures, as well as all-in costs. Don’t hesitate to negotiate for a better fee rate as well.

Do Banks Offer Free Financial Advice?

Depending on what you’re looking for, you may be able to cut down your costs quite a bit by getting relatively easy questions answered by your bank. Most banks offer free financial advice from banking or financial professionals. Many larger banks offer certified financial advisors that you can consult with and get your questions answered.

These professionals work for the bank, though, so they may not have your best interest in mind at all times. It’s important to understand what the relationship is and how it works before jumping at the chance to get free financial advice. You may also end up paying more in fees at your bank for getting access to a service for more serious inquiries.

Robo-Advisor Fees vs. Traditional Advisor Fees

If you’re just starting out and have a small balance, you might consider working with a robo-advisor. As a rule of thumb, robo-advisors generally charge lower fees than traditional advisors. While traditional advisors typically charge higher fees, robo-advisor fees can be 0.25% to 0.50% of AUM, according to the same Advisory HQ report referenced earlier.

Of course, you’ll be getting different levels of service from each type of advisor. Though both provide portfolio management, a robo-advisor won’t guide topics like estate planning and insurance planning. Also, you’ll have limited access to humans with a robo-advisor. Typically, robo-advisors are recommended for people with less complicated situations and less to invest, while traditional advisors are suggested for those with more money and more complex financial situations.

Bottom Line

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Selecting a financial advisor who charges fees you can genuinely afford and trust is a huge part of building a successful advisor-client relationship with them. Therefore, make sure you really do your research before making a final decision on a firm or advisor to entrust your assets. Beyond investments, also consider what other financial hurdles you might encounter, like paying for your children’s college or retiring comfortably. In turn, look for advisors who may have a specialty in those specific areas.

Tips for Finding a Financial Advisor

  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are thequestions you should ask an advisor to ensure you make the right choice.
  • If you’re worried about the financial advisor costs, consider using a robo-advisor. Robo-advisors typically require lower minimum investments and charge lower fees. This makes them a better option for people with less money to invest.

Next Steps

Do you want to learn more about financial advisors? Check out these articles:

  • How to Choose a Financial Advisor?
  • Are Financial Advisors Worth it?
  • Are Financial Advisor Fees Tax-Deductible?
  • What Commissions Do Financial Advisors Earn?
  • How Do Financial Advisors Make Money
  • What Are the Benefits of Working With a Financial Advisor?

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As a seasoned financial expert with extensive knowledge in the field, I can provide a comprehensive breakdown of the concepts discussed in the article you shared. My expertise is grounded in a thorough understanding of financial advisory services, fee structures, investment strategies, and the various considerations individuals face when seeking professional financial guidance.

The article addresses key aspects related to financial advisor services, costs, fee structures, and considerations for individuals seeking financial planning assistance. Let's delve into the main concepts covered:

  1. Financial Advisor Fee Structures:

    • Percentage of Assets Under Management (AUM): Advisors may charge a percentage of the total assets they manage for a client. The rate can vary based on a tiered schedule, generally decreasing as asset levels increase.
    • Hourly Charges: Advisors may charge an hourly rate for specific projects or consulting services.
    • Fixed Fees: A predetermined amount paid for a specific service, such as creating a financial plan.
    • Commissions: Advisors earn additional compensation when a purchase or trade is executed.
    • Performance-Based Fees: Additional fees are charged if the advisor outperforms a defined benchmark.
  2. Types of Financial Advisors:

    • Fee-Only Advisors: Earn money exclusively from fees paid by clients, avoiding commissions or compensation from specific financial products.
    • Fee-Based Advisors: Earn money from client fees and may also receive third-party commissions. They may be dually registered as broker-dealers or insurance agents.
  3. Average Financial Advisor Fees:

    • Percentage of AUM: The average fee in 2021 was 1.02% for $1 million AUM.
    • Fixed Fees: Ranged from $7,500 to $55,000, depending on the size of the investment.
    • Hourly Fees: Typically between $120 and $300 per hour.
  4. Financial Advisor Certifications:

    • The article mentions the Certified Financial Planner (CFP) designation, highlighting that CFP professionals may charge higher fees for comprehensive financial planning services compared to non-CFP advisors.
  5. Additional Costs and Considerations:

    • Beyond advisor fees, clients may incur brokerage, custodial, and other third-party fees.
    • Mutual fund and ETF costs associated with investment choices can contribute to overall expenses.
  6. Evaluation of Financial Advisor Fees:

    • Clients should carefully review fee structures, ask about additional costs, and understand the value provided by the advisor.
    • The importance of transparency in understanding how financial advisors are compensated.
  7. Robo-Advisors vs. Traditional Advisors:

    • Robo-advisors generally have lower fees and minimum investment requirements compared to traditional human advisors.
    • Traditional advisors offer a broader range of services and personalized guidance.
  8. Choosing a Financial Advisor:

    • Tips for finding a trustworthy financial advisor, including the use of tools to match individuals with vetted advisors.
    • Consideration of specific financial needs, such as retirement planning or college funding.

In conclusion, the article provides valuable insights into the complex landscape of financial advisor services, fee structures, and considerations for individuals seeking professional financial guidance. This information equips readers with the knowledge needed to make informed decisions when selecting a financial advisor and managing their financial goals.

How Much Does a Financial Advisor Cost? (2024)


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