How Much Does a Financial Advisor Cost?
As you plan your financial goals and prepare for retirement, you may end up turning to a financial advisor. But you might wonder how much it will cost. While financial advisors usually charge a flat fee of $1,500 to $2,500 for the creation of a financial plan, the rest of the fees can include a percentage based on your assets, or additional hourly rates. Generally, cost depends on the type of advisor you choose and what you want to do, so it is important to determine what your financial needs are first.
What type of help do you need?
The cost of a financial advisor may be a lot to shoulder, however considering a robo-advisor may actually fit your needs better. Rather than an actual person, robo-advisors are computer-based services that help you manage your investments.
Here are some advantages of a robo-advisor:
- Lower fees than traditional advisors and sometimes no account minimums are required. This is great for those looking to start on their financial goals but are on a tight budget.
- Easy-to-use features and is great for less complicated financial situations. Most also offer the option to communicate with a human for any questions.
Both robo-advisors and traditional advisors provide investment guidance and portfolio management. You can start off with robo-advisors for investing in stocks and then turning to a traditional advisor for further financial planning advice. Both use the “assets under management,” or AUM fee structure.
“Assets under management” fees
Typical financial advisor cost:
Robo-advisor fees are as low as 0.25% of your balance per year. Many top providers charge 0.50% or less.
Traditional advisors typically charge 1% to 2% of assets under management.
Robo-advisors and traditional advisors charge based on the money they manage for you, and these fees are usually taken from your account monthly or quarterly. One big difference between the two is the minimum required balance. Some traditional advisors may not take clients with less than $250,000 whereas robo-advisors generally do not have a minimum, or requires as little as $500. You may also have to pay a commision to your advisor to buy and sell investments, while robo-advisors frequently waive these charges for you.
Additional financial advisor fees
The AUM fee structure generally applies to managing your investments. If you have other financial needs such as creating a financial plan, you may want to find an advisor who offers a wide range of financial planning services. Again, these extra fees depend on the services you need. Here are some common fee structures that a traditional advisor might use.
Retainer for Services
Typical Charge: Between $2,000 and $7,500 a year
A retainer fee is an upfront cost, either annual or monthly, an advisor charges for comprehensive financial planning. The advisor generally helps create a plan, implement it, and monitoring its progress. The cost you pay relates to how complex your financial planning needs to be.
Typical Charge: $200 to $400 an hour
A set hourly rate for your advisor means that you won’t be charged depending on your asset level. This offers flexibility since you are only paying for what you need. The advisor helps you plan your financial goals, which you then implement on your own.
Typical Fee: $1,000 to $3,000 for a financial plan
For the service you request, the advisor will charge a set fee. You’ll get an outline of what will be included and pay upfront for the services requested. However, the advisor won’t be providing management for you after putting together a comprehensive plan, you’ll need to carry that out yourself.
Typical Fee: Varies, but can range between 3% and 6% of your investment.
Advisors may be paid through commission, which comes out of your pocket, based on the investments they recommend. It is important to note that advisors are not required to recommend investments that are the best fit for you. While some advisors undoubtedly put your interests first, you should be sure to inquire about their fiduciary responsibility.
Now that we’ve covered the different types of fees, let’s dive into the difference between the different types of advisors.
CFA vs CFP
A CFA, or chartered financial analyst, tends to work more with financial analytics. Working with a CFA is common for people who want help with asset allocation or investing. A CFP, on the other hand, is a certified financial planner. Common jobs for CFPs include financial planners, wealth managers, or financial advisors to individual clients. A CFP is more tailored towards individuals who need help with financial planning.
Financial Advisor vs Wealth Manager
A financial advisor helps clients with a wide range of financial services. Some typical services for clients include financial planning and investment management. Wealth managers are a subset of financial advisors. The only difference is the people they service, generally high net-worth individuals who hire them to manage large amounts of wealth. They offer many different services, and are usually put into one comprehensive package, depending on the client’s needs.
A CPA is a certified public accountant who works with taxes and accounting. While CPAs make for great business advisors, they cannot help you review your investments or provide you any advice since it can lead to professional liability claims against the CPA.
How to Minimize Financial Advisor Fees
The most important part of choosing an advisor is to understand how much you’ll pay for services and what those services include. You should think hard about whether a traditional advisor is right for your situation or if a robo-advisor could do just as well since they have lower fees and minimums.
If you do decide to go to a traditional advisor, make sure to know the difference between a fee-only advisor and a fee-based advisor. A fee-only payment structure tends to be simpler, whereas fee-based advisors may also charge commission on top of the fees you already paid. As you search for the right financial advisor for you, make sure to ask plenty of questions and don’t hesitate to negotiate for a better fee rate.