Financial advice isn’t a luxury service reserved for the wealthy. Financial advisors can help the average person figure out what to do with their money, from managing investments to planning for retirement, to creating a family budget.
But figuring out how much a financial advisor will cost can be tough. Financial advisor is actually a very broad term that includes investment managers, financial planners, stockbrokers, and more.
That said, there are a few common pricing models that financial advisors use, which can help you determine what fee structure will work for you.
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The amount you pay will depend on the services you need and the fee structure of the advisor you work with.
Some financial advisors get paid on commission when they make the sale of an investment product, like a mutual fund or annuity. This type of fee structure is most common with financial advisors that manage assets or recommend investments for their clients. This is also a common pay structure for advisors who sell insurance. Any time a sale is made, the financial advisor gets paid a percentage of the transaction, which ranges based on the product being sold.
The downside is that “advisors are often more incentivized to sell the products of the firm that they work for,” says Drew Feutz, certified financial planner at Market Street Wealth Management Advisors, a fee-only wealth management firm. It also can create a conflict of interest because the client doesn’t know for sure if the advisor is recommending a product because it’s best for the client or it’s more profitable for the advisor.
Assets under management fee
Assets under management (AUM) is another fee that is commonly used by financial advisors who manage their clients’ assets and investments. The advisor charges the client a percentage of the assets they manage, which can fluctuate based on the amount of assets. For example, the advisor may charge you 1% for the first $1 million they manage for you, then .75% on everything exceeding that amount. The AUM fee can be deducted right from your account, usually on a quarterly basis.
AUM fees are common with both human financial advisors and robo-advisors, automated algorithms that manage your money for you. Robo-advisors that charge based on AUM tend to take a much smaller percentage than their human counterparts, but you may not get the level of personal service you would with a human advisor.
The problem with AUM fees is that you aren’t directly cutting a check to your financial advisor, so it’s easy to be less aware of how much you’re getting billed. Plus, the advisor may be less inclined to offer advice that reduces the amount of assets they manage for you, like withdrawing assets to pay off debt, even if it’s the right call.
Some financial advisors charge performance fees on top of their AUM fees, Feutz says. If the investments your advisor chooses outperform a certain benchmark, they’ll get an additional percentage of that gain, says Ryan Firth, certified public accountant and president at Mercer Street, a financial planning firm that charges on an hourly basis. The advantage is that your advisor will be financially motivated to make you the most money they can, but the disadvantage is that this may lead to more risk-taking with your money.
Project-based fixed fee
Often, financial advisors work on one-time projects for their clients. They might be developing a comprehensive financial plan, creating a retirement savings plan or determining the right way to save for your child’s college education. Whatever the project is, the advisor may be able to charge a fixed fee for their services.
“The client and professional agree to a set amount of how much they charge for their services to be rendered. So if a financial plan is $1,000, the client agrees to pay that amount and if the planner takes longer than they assumed, they still only receive that amount,” Firth says. This can help alleviate some hesitation clients have about getting overbilled.
Costs vary based on how much time and work is involved. If you want help with basic budgeting and a few focus areas, your plan could come under $1,000, Firth says. But more complicated projects that involve investment analysis, business advice and a lot more oversight could range up to $5,000 or more.
Some financial advisors charge on an hourly basis, like an attorney. The financial advisor will spend as much time as they need on your account, and bill based on that time. They’ll track how much time they spend with you in person, on the phone and working behind the scenes on your account to determine your bill.
If your financial advisor is working on a one-time project for you, they might give you an initial estimate of the expected cost of the project based on how many hours they believe it will take to complete. They may go over or under that estimate, but should give you a heads up if they anticipate going over budget.
Hourly rates vary based on where you are, who you work with, and how experienced the planner is, Firth says. On the low end you could expect to pay around $150 per hour, while higher-end firms could charge $500 per hour or more.
Subscription or retainer fees
Some financial advisors offer a subscription or retainer model, where clients pay a monthly fee just like a gym membership. The services you receive for your monthly membership fee vary based on the financial advisor and their area of expertise. The monthly fee may be based on your net worth, the level of services you want to receive and more.
The subscription model tends to be more popular with younger clients who are used to paying as they go, Firth says. They’re also appealing to people who don’t have a lot of assets to manage and just need straightforward, simple financial advice.
Fee-based vs. fee-only
Many financial advisors don’t stick to a single pricing model. They might offer multiple options for different services or a hybrid approach. If the advisor isn’t purely commission-based, the biggest difference in pricing models is whether the financial advisor is fee-based or fee-only.
Fee-based financial advisors may charge a fee for their financial planning services, such as an hourly or flat fee for services. But they can also receive commissions from selling financial products.
Fee-only financial advisors do not sell financial products and don’t earn any commissions or compensation outside of what they directly bill their clients. They will only charge hourly fees, flat fees or subscription fees, or some combination thereof.
“The reasoning behind [fee-only] is to provide transparency, objectivity and to reduce conflicts of interest inherent in commission-based transactions,” ensuring that services are performed with the best interest of the client in mind, Feutz says.
Tips for affording a financial advisor
Finding the right financial advisor that you can afford depends on what you need. You’ll want an advisor who has experience in the services you’re looking for, acts ethically and in your best interest, and fits your budget. Here are some tips for affording a financial advisor:
Know what you need
Decide what you need from your financial advisor before you hire one. Your understanding of what you need may evolve as you interview potential advisors, but it's good to know what you’re looking for ahead of time.
Knowing what you want can help you narrow your search down. Some advisors specialize in certain areas such as investments, retirement planning, or small business ownership. Make sure the advisor has experience in the areas you need help with.
Look for a financial advisor that fits your budget and provides the level of service you need, Firth says. If you’re more of a delegator and you want someone to manage your money for you, choosing a wealth manager who charges AUM fees might be the best option. If you’re pretty hands-on and you just need advice or a one-time financial plan, working with an advisor with an hourly fee, flat fee or subscription fee might work better.
Know how much it will cost
You should have a full understanding of how your financial advisor gets compensated in general, and how much they will charge you personally. Whether you’re working on a one-time project or hiring a financial advisor for the long term, you don’t want any surprises when it comes to your bill.
Many financial advisors publish their fee structure online, including basic pricing. If they don’t (and even if they do), make sure that pricing is one of the first things you discuss so you know if their services fit your budget.
Gather information for your first meeting
The more prepared you are for your first meeting with your financial advisor, the faster you can start getting financial advice. It will cost time and/or money to hunt down documents, account passwords and other information, especially if you have to get your financial advisor involved.
Get a checklist of everything you need to bring to the table when you meet with your financial advisor. You may need bank statements, retirement account statements, estate planning documents, and information about your income and net worth. If you have a working budget, bring that too.
“Having an understanding of your finances before you meet with the planner is a good first step,” Firth says. “Having a budgeting system in place, documents ready and together with a snapshot of your net worth is something you can do ahead of time to get ready for your meeting.”
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