Lifestyle
Financial Advisor Fees: What You Need To Know
Financial advice is ubiquitous. Financial advisors are everywhere. This leads to a multitude of options saturating a confusing landscape, causing consumer fatigue for many Americans seeking sound financial advice. What’s the right choice for you? Let’s examine financial advisor fees to help you understand what type of financial advisor is right for you.
C.E Larusso
Published February 7th, 2023
C.E Larusso
•
Published February 7th, 2023
Table of Contents
Key Takeaways
Financial advisors choose from a variety of fees, including flat and hourly rates, percentages based on assets-under-management (AUM) and commission
Some financial advisors select one option for payment, while a few choose a mix of models, depending on the kind of work they are hired for
Fee-only financial advisors are never paid via commission and are fiduciaries, meaning they are required to act in your best interest
The average percentage charged for AUM is 1%; this percentage might go down if you have a sizable account, over $5 million
Financial advice is ubiquitous. Financial advisors are everywhere. This leads to a multitude of options saturating a confusing landscape, causing consumer fatigue for many Americans seeking sound financial advice. What’s the right choice for you? Let’s examine financial advisor fees to help you understand what type of financial advisor is right for you.
How Much Does a Financial Advisor Cost?
There is no set price for hiring a financial advisor; the cost for financial advice and strategy is dependent on numerous factors, including the tasks requested, the assets under management, and the advisor’s fee structure.
The average percentage, based on the number of assets under management (AUM) for ongoing advising, is about 1% annually, but an advisor may charge less if you have significantly more assets under management—the fee for a $5 million account may only be .85%, but for anything under $500,000, the fee may jump to 1.2%. Some charge more if they have more experience or credentials to point to. Every advisor is different.
It’s important to not select the least expensive advisor you find. Have a thoughtful conversation with several advisors, and pick one who can serve you (and your money) best.
Looking for retirement advice? Our advisors are here to help.
Schedule your FREE Retirable consultation today.Common Financial Advisor Fees
Let’s look at the ways financial advisors charge their fees. Most advisors stick to one fee type, but some employ more than one, depending on the type of advice needed and length of retainer.
| Fee Type | Description | Typical Fees |
|---|---|---|
| Assets Under Management (AUM) | Fee is a percentage of the total amount of your assets being managed by the advisor; typically, the higher the assets, the lower the percentage. | Robo-advisor: 0.25% to 0.50% annually Traditional advisor: 1 |
| Flat annual fee (retainer) | Yearly rate charged for an agreed-upon set of services. | $2,000 to $7,500 |
| Hourly fee | Hourly fees are common for per-project advice or consulting. | $200 to $400 |
| Per-plan fee | A fee charged for the completion of one project or plan, such as a map for how to invest a single large sum of money, like an inheritance. | $1,000 to $3,000 |
| Performance Fee | A bonus fee may be requested if your financial advisor outperforms a particular benchmark; be sure to ask your advisor about such fees before you hire them. | Varies |
How Are Financial Advisor Fees Charged?
As we noted, a financial advisor may charge using a mix of the methods described above, or they may just choose one form of compensation structure. In addition, they might be a commission-based or a fee-only advisor, and it’s important to know the difference between the two.
Fee-Only Advisors
These financial professionals are paid for their services, and not on commission for any products they sell you. The fees are either flat-rate, based on AUM, or hourly. Most fee-only advisors are fiduciaries, which means they are required by law to act in your best interest—they can’t push you to buy a mutual fund that will earn them a kickback if it would be a bad deal for you.
Commission-Based Advisors
These planners earn bonuses when you buy certain products, like mutual funds or annuities, that they recommend to you. This can cause a conflict of interest.
Fee-Based Advisors
Fee-based advisors meet somewhere in the middle; they usually have a flat rate or a retainer, but might also receive a commission on some products they sell to you.
Why a Financial Advisor's Fee Structure Matters
It’s important to not only understand the kinds of fees that financial advisors can charge, but also which fees your advisor will be charging you. This impacts how much you pay them and how frequently you pay them, and also lets you know if they are acting with fiduciary responsibility or not. If not, you have a right to ask about their compensation/bonus sources.
Ask your advisor to give you a detailed explanation of what investments they are making and why; any answers that are vague or elusive should be a red flag. In addition, advisors that suggest their services are free are also cause for concern.
Ultimately, when it comes to your finances, you should select an advisor who you can trust.
Frequently Asked Questions
What is the normal fee for a financial advisor?
There’s no normal fee, exactly, but the average percentage applied to AUM is around 1%, with flat annual rates varying between $2,000 and $7,500. Hourly rates tend to be for specific projects, and run $200 to $400.
How much money should you have saved before talking to a financial advisor?
Many financial advisors won’t work with portfolios below $100,000, though others have a $50,000 bar. You’ll need to shop around if you have less than $50,000 in assets and want professional advice, or consider a robo-advisor until you have saved more to warrant the use of a financial advisor. That said, there may be very specific instances for which you want to hire a planner, which is why per-project flat and hourly rates exist. These instances might include a strategy to pay down debt, to save enough money for a down payment, or improve your credit score.
What’s a robo-advisor?
A robo-advisor is an automated tool—usually in the form of an app or a website—that makes investments on your behalf. These advisors are usually best for those who are just starting to save and build wealth, as the fees are low, with an average of 0.40% AUM annually, but they don’t offer the robust personalization that a certified financial planner would.
Final Thoughts
There are a lot of financial advisors out there, so the most important thing is to find one that you feel will do the best by you are your assets. Ask a lot of questions before signing a contract, and make sure to select an advisor from a trusted source, such as Retirable.
We start with a free retirement consultation to make sure our recommendations will be in your best interest and that we can help. We’ll review your savings, Social Security and other income sources to put together a retirement spending plan to align with your lifestyle goals.
If you like our strategies and want to put them into action, we’ll put together an investment strategy and spending plan to ensure your savings will last while helping you spend more to meet your lifestyle requirements. You’ll discuss the details with your advisor and they’ll make any adjustments as needed.
The best part? We keep our fees low to bring expert advice to every retiree—no matter the size of their nest egg. We charge .75% of assets-under-management on the first $500k only, capping our fees for those with more than $500k AUM. Getting started is free, set up your no-obligation free consultation with a Retirable advisor today!
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C.E Larusso
A professional content writer, C.E. Larusso has written about all things home, finance, family, and wellness for a variety of publications, including Angi, HomeLight, Noodle, and Mimi. She is based in Los Angeles.
Share this advice
C.E Larusso
A professional content writer, C.E. Larusso has written about all things home, finance, family, and wellness for a variety of publications, including Angi, HomeLight, Noodle, and Mimi. She is based in Los Angeles.
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