So, how much does it cost to hire a financial advisor or financial planner?
I wish the answer were simple, but we're about to go on a little journey to help you understand more about the potential costs of working with a financial professional.
This is not a comprehensive guide, but should give you a pretty good idea of what you're looking at.
Below are a few of the most commonly-used fee structures that financial professionals may offer:
Basic Structures:
- Asset-Based Fees
- Financial Planning Fees
- Subscription Fees
- Hourly Fees
- Commissions
1. Asset-Based Fees
This is where an advisor charges a fee for managing your investments, and may also include other financial planning services. You may also hear this structure referred to as things like: wrap fee, advisory fee, management fee, AUM (Assets Under Management) fee, and many other creative terms that advisors have come up with.
In many cases, this fee structure requires that your advisor act in a fiduciary manner. What does that mean for you? It means that he or she should be acting in your best interest, and be able to prove it to the regulators if required.
"Fiduciary" does NOT mean that this type of arrangement eliminates all conflicts of interest. It DOES require that those conflicts of interest be disclosed to the client. Ask about them!
Asset-Based Fees can be all over the board. It depends on whether you're paying some other type of fee (see below), and can differ greatly depending on how much you invest. They can get very low, even down to 0.01% - 0.05% for very large accounts (usually with some other fee). I've seen some advisors charge as high as 2%.
Make sure you know exactly what you're getting, and what you're paying for.
2. Financial Planning Fees
Some advisors charge a financial planning fee either in addition to, or in place of, an asset-based fee. Confused already? I can see why!
An advisor may charge a separate financial planning fee, even if he or she manages your investments. This type of advisor typically views financial planning as a separate service, and charges for it separately.
You may also find some advisors that do not manage investments at all, and just provide advice and planning services. This can be an option for DIY investors that need advice in other areas.
In most cases, financial planning fees are flat and agreed-upon upfront with a written contract.
Oh, and to add to the confusion, some advisors will even include investment management inside of your financial planning fees.
Again, these fees can be all over the board. I've seen advisors charge $500 for very simple cases and I've seen them charge $100,000 or more for very complex cases.
3. Subscription Fees
These are essentially the same as the financial planning fees above, but, rather than paying one lump sum, the advisor may bill you monthly, quarterly, or some other arrangement.
Yet again, fees differ greatly. Low-complexity situations can be under $50/month in some cases. Very complex situations can be upward of $10,000/month.
4. Hourly Fees
Your advisor may bill you in a more traditional hourly manner for advice and planning. I don't know many advisors that charge less than $100/hour, and know some that charge $1,000/hour or more for very specialized work.
Get a very clear proposal from your advisor and make sure that you're comfortable with the estimate of hours for the project.
5. Commissions
In some cases, you will pay a commission (sometimes known as a sales charge) for purchasing your financial product. In other cases, the advisor is paid a commission by the company offering the product that you purchased.
Commissions can get a bad rap out there in the world, because there can be significant conflicts of interest between you and the advisor.
Are they pure evil? In my opinion, no. It all depends on your goals, and making sure that is the type of relationship you want with your advisor.
Takeaway:
Make sure you ask your advisor (or any potential advisor) about fees. Make sure you fully understand fees, and that you read anything you're asked to sign. If you don't understand, ask!
And if you don't like the answer, or your gut tells you that something is off, get another opinion.
None of the fee models above are inherently good or bad, but make sure you don't fall into a sales trap without fully understanding what you're getting into.
If you’re curious about our fees, check out our Services & Fees section of our website