Hiring a financial advisor is a great way to understand your financial situation and make better financial decisions. A financial advisor will work with you to assess your current financial situation and recommend actions to take to reach your goals.
Some people are hesitant to talk to financial advisors because of the uncertainty about the fees they charge and the perception that they are only for the wealthy. But working with a financial advisor, regardless of income level, is one of her ways to have her best-earning year. This guide details financial advisor fees and costs to give you a better understanding of how much your financial advisor charges.
What is a Financial Advisor?
Financial advisors are professionals who provide a variety of services aimed at helping clients better manage their finances. Financial advisors recommend investments and strategies, develop comprehensive financial plans, and manage investment portfolios for their clients. It can also help you prioritize specific financial goals or adjust your finances after a major life transition such as divorce or retirement.
How much does a financial advisor cost?
Several factors influence when determining the cost of working with a financial advisor. However, the key factor is whether you choose a human advisor or a robo-advisor.
If you want to work directly with a real person on finances, you’ll need to find a human financial advisor. Advisors typically work under one of her three payment structures: commission-only, commission-based, and commission-based.
Fee-only advisors make their money by charging a flat fee. Flat-rate pricing is based on the amount of funds you manage, also known as hourly or asset under management (AUM) pricing. They don’t profit from the fees.
If a financial advisor’s services charge a flat annual fee, you can expect to pay approximately $2,000 to $7,500 annually in compensation for their services. In return, you typically receive comprehensive investment management and wealth planning throughout the year.
Financial advisors that charge an hourly rate typically charge $200-$400 per hour. With this pricing structure, you only pay for the time you spend working with your advisor. Advisors generally do not provide additional oversight for investments or assets unless you pay an additional hourly fee.
AUM fees for traditional face-to-face financial advisors are typically around 1% of the assets the advisor manages. For example, if you hired a financial her advisor to manage a $500,000 asset, the advisor could charge you about $5,000 a year. Advisors that use AUM fees to charge for their services cannot accept clients whose balance is less than a set amount, such as $250,000.
Paid Advisors are similar to Paid Advisors in that they also charge their clients AUM, hourly fees, or flat fees for their services. The main difference is that paid advisors also get paid from other sources, such as commissions.
Don’t assume that paid advisors are always more expensive than paid advisors just because they charge a fee. Costs vary, and neither paid advisor nor paid advisor is automatically more affordable than the other.
Some financial advisors get paid through commissions on the financial products they recommend to each client. Fee-based financial advisors make their money solely on fees. Receive payouts when you recommend certain investments. For example, for mutual funds, expect her financial adviser’s fees to be her 3% to 6% of the investment amount. Those fees are out of your pocket.
Some people worry about working with financial advisors who earn their income through commissions because of potential conflicts of interest. Registered investment advisors must disclose potential conflicts of interest to their clients in writing, but if they still have concerns, they can simply choose a fee-based advisor over a fee-based advisor.
Fee-only advisors make their money solely from commissions they receive from their clients. That said, fee-based advisors tend to be more expensive than fee-based advisors. Financial he should keep these differences in mind when deciding how to choose an advisor.
Robo-advisors are automated digital tools that provide financial advice and direct financial control to clients with little or no human intervention. We leverage software, data and advanced algorithms to provide financial insights and help you reach your financial goals. Most robo-advisors offer a variety of investment services, such as investment rebalancing and tax optimization.
Robo-advisors offer the most affordable service as they only offer investment management. Robo-advisor fees will be a minimum of 0.25% and a maximum of 0.50% or more of the assets managed by the robo-advisor. For example, if he manages a $100,000 asset through a robo-advisor, her AUM fee of 0.25% would be just $250 per year.
However, the use of robo-advisors is generally not a complete replacement for working with a human financial advisor. Some prefer the human element of having a professional relationship with a financial advisor.
Online financial planning tool
Some online wealth management platforms, such as Empower (previously known as Personal Capital), work as an alternative to working directly with a financial advisor. Other platforms, such as Zoe, allow you to get in touch with your advisor. These tools are digital like robo-advisors, but offer a more comprehensive service beyond investment management. There is a flat annual fee (starting at about $1,000/year) or an AUM fee (usually 0.3% to 1%).
If you can’t afford to hire a financial advisor, you can also consider free financial counseling services from reputable nonprofits. Free Financial Beware of anyone claiming to be her advisor as scammers use this tactic to gain access to sensitive financial information.
How to find a financial advisor
If you decide you need a financial advisor, try the following methods to find a qualified financial advisor near you.
- Ask family and friends for recommendations. A personal recommendation from someone you know and trust is definitely the ideal way to find a financial advisor. Ask family and friends if they can refer you to a financial advisor who will meet your expectations.
- Use a search engine. Remember to seek out personal financial advisors through search engines. You can search for ‘Financial Advisors near me’ or ‘Certified Financial Advisors’. [your location]to find the top results in your area. Searching online makes it easy to read reviews and learn more about each advisor’s offerings.
- Check out the National Association of Personal Finance Advisors. On the NAPFA website, you can search for commission-only fiduciary financial planners by zip code or location.
- Search for CFP boards. Similarly, the CFP Commission website has features that allow you to search for certified financial planners based on your location and planning services you are interested in. Examples of planning services you can search for include tax planning, small business planning, and real estate planning.
- Works with robo-advisors that provide access to advisors. Many robo-advisors include access to a human financial advisor as part of their fee. It’s a great option for those who do most of the financial management themselves, just answering a few questions.
- Choose an online financial advisor. If you can’t find a financial advisor locally, you can look for one who offers their services entirely over the Internet. These financial advisors can help you wherever you live in the country.
Important Questions to Ask Your Financial Advisor
When deciding which financial advisor to hire, it’s a good idea to make a list of questions for potential candidates so you can better understand their services. You can ask each candidate the following questions:
What are your qualifications?
Anyone can call themselves a financial advisor, but if you trust someone to help you make important financial decisions, you want them to be qualified to back up their expertise.
Financial advisors generally need at least a business-related bachelor’s degree and some practical training to start working in this field. Financial Many of her planners aim to pursue additional degrees after graduation, such as a master’s degree in finance or business administration.
Some financial advisors have professional qualifications such as Certified Financial Planners, Certified Financial Analysts, and Certified Financial Consultants. These certifications demonstrate that financial advisors have expertise in specialized areas such as tax and retirement.
Financial planners may be required to register with the Securities and Exchange Commission or obtain a state license to practice. For example, if a financial her planner buys or sells certain stocks or bonds directly, more credentials may be required.
Ask your financial advisor how long they have been working in the field and if they are qualified to help you. If one of your financial advisor qualifications doesn’t seem relevant to the services you’re interested in, it could be a good time to choose another financial planner.
What is the fee structure?
To avoid cost-related surprises in the future, ask your financial advisor about the fee structure in advance. If you want to know how much you’re going to pay upfront, it might be a good idea to talk to a financial advisor who charges a flat rate.
Are you a trustee?
Ask any financial advisors you may work with if they are fiduciaries. A trustee manages another party’s assets and has a legal and ethical obligation to put that party’s interests, in this case yours, above their own. Financial advisors may or may not be fiduciaries, but accredited financial planners and registered investment advisors are always fiduciaries.
It is important to know if your advisor is a fiduciary because a fiduciary can provide a higher standard of care. Advisors who are not fiduciaries need not be excluded from the list of candidates, but should be kept in mind.
What other costs do I have to pay?
Your financial advisor should also inform you if there are any other costs associated with the services they provide. If not, remember to ask if you should worry about other charges.
Advisor fees may not be included in the Advisor Fee for the investments you choose. To find a financial advisor worth your money, you need to have a complete picture of the fees that each financial her advisor may incur.
Financial Advisor and Financial Planner
Financial advisors and planners often use the two terms interchangeably, so it’s easy to confuse them.
A financial planner is part of a financial advisor. They specialize in creating detailed plans that help achieve long-term financial goals.
A financial planner may or may not manage your investments as part of their service. Some specialize in specific areas of financial planning, such as divorce planning or retirement planning. If you want to know the best money movements for future events, a financial planner might be for you.
Are Financial Advisors Really Worth It?
If you’re struggling with financial decisions and need professional help, working with a financial advisor can be a great investment in your future. On the other hand, if you’re already meeting your financial goals, the financial advisor’s fee may not be worth it. There are a few things to consider when weighing the pros and cons of paying for financial guidance.
- A financial advisor can help you manage your finances including investments, savings and goals.
- Be aware of each financial advisor’s fee structure (fee-only, fee-based, or commission-only).
- Consider expanding your search beyond human advisors to include robo-advisors and online financial planning tools.
- Compare quotes from multiple advisors to find the best option for your goals and budget.