How Much Does a Financial Advisor Cost?
The cost of hiring and working with a financial advisor varies based on their fee structure. Financial advisor fees are typically determined by a management fee, which can either be an Assets Under Management (AUM) fee, or a flat fee arrangement.
An AUM-based fee means that the advisor charges a percentage of the assets they manage for you, while a flat fee structure involves a set amount paid for their services, regardless of the size of your portfolio. Each fee structure has its own advantages and considerations, so it’s important to understand how the advisor’s fee will impact your overall financial plan.
When discussing advisor fees, the terms “transparency” and “clarity” are often overlooked, but they should be at the forefront of any conversation. Be cautious of advisors who offer “free” financial advice, as this often points to a commissioned broker. While it may seem appealing, “free” advice often leads to proprietary or insurance products that earn the advisor a commission.
It’s important to understand that when an advisor is incentivized to sell certain products, they may not be legally required to act in your best interest. A truly independent advisor should be transparent about their fee structure and focus on offering advice that aligns with your financial goals, not on selling products that benefit them financially.
What to Know About Financial Advisor Costs
At FindInvestPartners, we dedicate significant time to interviewing and vetting advisors to ensure your peace of mind. All of our advisors have been thoroughly evaluated for their costs, fee structures, and their legal obligation to act as fiduciaries—meaning they are committed to working in your best interest.
Assets Under Management (AUM)
This is a comprehensive financial advisor relationship where the advisor provides ongoing financial planning and investment management. The costs associated with such advisors are typically a percentage-based fee, calculated on the assets the advisor manages on your behalf.
Is this the plan for you?
This is ideal if you are transitioning into retirement, or if you do not feel comfortable managing your investments on a daily basis. This is the most all-encompassing and full service you can get from a financial advisor. Most busy families opt into this relationship because of that.
AUM Fees: We see fees ranging from .80% to 1.5% of the assets an advisor manages. For example, if you were to hire an advisor under the AUM fee structure, and they managed $1 million dollars for you, their annual fee would be 1% of those investments, which would equate to a $10,000 annual advisor fee. This is not an out-of-pocket expense, the fees come directly from your investment account.
Thinking about something different?
If you do not want an advisor managing your assets or would like to begin in a less all-encompassing relationship. We see families start with a One Time Plan or Retainer option to later migrate to an AUM relationship when it makes sense.
Flat Fee Retainer
This is an agreed-upon ongoing flat-fee financial planning retainer to begin a relationship with a dedicated financial planner. Potential financial advisors’ costs will take the form of a monthly fee.
Is this the plan for you?
This is ideal if most of your assets are tied up in workplace retirement plans or stock options. You are younger in your financial journey and in the accumulator phase and would like ongoing guidance on how to save more, invest smartly, and plan for your short-term and long-term goals.
Fees: We see fees ranging from $100 to $500/month for a financial planning retainer.
Looking for something more?
The downside of this service is that an advisor is typically not actively managing your assets. You might want to upgrade to an AUM relationship if you feel you need more involvement from your advisor.
One Time Plan
This is a one-time, agreed-upon flat fee for financial planning services with an advisor. The cost is charged only once to help you build a comprehensive financial plan.
Is this the plan for you?
This is ideal if you have a narrow question or decision that needs to be made, or you are very comfortable self-managing your investments, but just want an advisor to help construct a plan.
Fees: We see fees for a one-time financial plan ranging from $1,500-$5,000 depending on your financial situation.
Looking for something more?
The downside of a one-time financial plan is that it is a static document in time. Should your family’s situation change, most likely your plan will need updating. More often than not, families are opting into an ongoing relationship with an advisor so they can build a relationship and allow that advisor to be proactive in protecting their wealth.
Ask The Right Questions To Avoid Common Red Flags
Choosing the wrong financial advisor can mean working with someone who doesn’t prioritize your best interests. This can cause you to lose focus on what truly matters and make it more difficult to achieve your financial goals. If you’re in the process of finding the right advisor, it’s important to be aware of key red flags before making any decisions. To help you navigate this, here are some essential questions to ask to better understand the costs associated with financial advisors.
Do you receive any compensation from any investment company for recommending any of their products?
This should be a “No”. Some advisors will say that they do not receive commissions specifically, but they actually still receive backdoor kickbacks that you are paying via 12b-1 fees from mutual fund companies. Those additional fees can range from 0.25% to 1%, which can really add up!
Do you earn a commission from private funds or other investments?
The answer should be “No.” If they receive any type of commission, they will be biased and unable to work in your best interest.
Are all of your fees itemized in writing?
The answer here should be “Yes.” Just like when you receive your receipt at a restaurant, you want to know exactly what you’re paying for.
How many clients per ‘client-facing’ advisor does your practice have?
If the practice has more than 200 clients per advisor, then its important to find out how much support staff does the advisor have to service the client. If an advisor has primary coverage of 600 clients, it is fair to assume that they do not offer a high-touch service. Thus, fees should be well below what full-service advisors charge.