A financial advisor can cost anywhere from a few hundred dollars for a one-time service to several thousand dollars for ongoing advice and management. It all depends on the advisor’s fee model, how much money you have invested, and how much help you need.
“Understand what you’re paying and what you’re getting,” says Dana Anspach, CFP, founder, and CEO of Sensible Money. She told us what financial advisors really charge and the hidden costs to look out for.
How Financial Advisors Charge
Financial advisors charge for their services in different ways, and the specific fee structure can make a huge difference in what you pay.
Here are the most common arrangements:
- Assets Under Management (AUM): A percentage of the assets your financial advisor manages on your behalf
- Annual fee or retainer: A set cost for the advisor’s services that you pay every year
- Hourly fee: A fee you pay for each hour of the advisor’s time
- Flat fee: A specific amount for a particular service
- Commissions: Money the advisor earns from assets you buy or sell
Before hiring an advisor, make sure you understand what you’ll pay and when you’ll pay it. A good financial advisor will explain all costs clearly before you commit to anything. This way, you won’t be caught off guard by unexpected fees.
You should also check whether a financial advisor is licensed and registered before you start working with them. Investor.gov’s Investment Professional Background Check lets you review an advisor’s credentials and examine any disciplinary history.
Financial Advisor Fees by Type
Let’s break down the different types of fee arrangements so you can understand how each one works:
AUM
This is when you pay a percentage of the assets your financial advisor manages for you—typically around 1 percent. Say you have $10,000 in investments, perhaps a combination of stocks and bonds. At 1 percent, you’ll pay them $100 a year. If you have $100,000 in investments, you’ll pay $1,000 a year.
“This is the most common fee structure,” says Anspach. “You pay the same rate, but a wide variety of different services can be offered.”
The percentage you pay might not stay the same throughout your relationship with your advisor. Some professionals charge a lower amount as your account balance gets larger, meaning you could pay a lower rate for your investments over time.
Annual Fee or Retainer
This is one of the simplest financial advisor cost structures. You pay your advisor a set fee each year to access their services, no matter how much you have invested. $6,815 is the average annual cost.
However, this can vary depending on how complicated your finances are and what you need. “This fee is not based on your assets,” Anspach says. “It’s based on the amount of time the advisor thinks it will take to manage your finances.”
An annual (or monthly, in some circumstances) fee may make it easier for you to budget because you get a certain amount of predictability. If you’re paying $7,000 a year, for example, you don’t have to worry about this cost changing every time your investment grows or you need additional help.
The fee isn’t set in stone, though. Anspach says it’s typically reviewed every two years, so the amount you pay can change in the future.
Hourly Fee
An hourly fee means you simply pay your advisor for the amount of time they work for you. $307 per hour is the average fee, though rates can differ depending on the advisor, so we recommend shopping around. These costs can add up if you need a lot of help.
Hourly fees might be beneficial if you don’t need someone to handle your assets on an ongoing basis. For instance, you can hire an advisor to simply review your investment choices or retirement plan.
“Many hourly advisors do not manage investments,” says Anspach. “So, if you were a do-it-yourselfer, you might just want a second pair of eyes.”
Flat Fee
With a flat fee, you pay your advisor a set amount for a particular service or work done over a set period of time. For example, it may cost a few thousand dollars for a financial plan that looks at your taxes and investments.
This fee structure might suit you if you just need help with something specific instead of ongoing financial advice. You can get quick guidance from a professional and then manage your finances yourself afterward.
Anspach says a flat fee can change over time: “It’s unlikely to stay flat for life. An advisor is going to have rising costs just like everyone else.”
Commissions
A commission-based fee means your advisor gets a portion of your money when you buy or sell things like insurance and investments. It’s usually a percentage of the purchase or sale, with commissions typically ranging from 1-6 percent.
One thing to note with commissions is the potential for a conflict of interest. This can happen if an advisor recommends certain financial products only because they’ll earn money from the sale. Always ask your advisor what products generate commissions and how they get paid.
“I think commissions are less common today than when I started in the business, which was 1995,” adds Anspach. “But you do see it still with certain annuity products.”
What Affects Financial Advisor Costs?
Certain things can affect how much you’ll pay a financial advisor:
- The size of your portfolio: Sometimes, the more money you have invested, the more you’ll pay an advisor. The AUM fee model is a great example of this. Your costs can increase substantially as your portfolio grows because you’re paying a percentage of your assets.
- How complicated your finances are: Advisors tend to charge more when your finances take longer to work out. Having several accounts or investments can certainly make things more complicated, potentially resulting in a larger bill.
- What services you need: The type of help you need may also affect what you pay. A simple retirement plan, for example, will probably cost less than ongoing advice about your taxes or investments, though it all depends on the advisor you choose.
- Account minimums: An advisor may require you to have a certain amount of money before they even work with you—say, at least $100,000 in investments. If you don’t have enough, you could have fewer advisors to choose from, including some that charge higher fees than average.
Other Costs to Watch For
The fee your advisor charges might not be your only expense. Your investments can also have fees, such as mutual fund and ETF expense ratios. These are typically taken out of an investment’s returns, so you might not get a separate bill for them.
Let’s say you’re paying your advisor 1 percent of your portfolio, and your funds have an average expense ratio of 0.25 percent. That means you’ll need to account for 1.25 percent in total fees each year. On a $50,000 portfolio, that’s $625.
You may also have to pay custodial fees for keeping your investment account or transaction fees if you buy or sell an investment. Your financial advisor should be upfront about these additional costs, so you know exactly what to expect.
“Transaction fees today are usually minor, but there can be a fee when a security is bought or sold in your account,” says Anspach. “There can also be what are called sub-advisory fees.“
The Financial Industry Regulatory Authority’s Fund Analyzer lets you compare the cost of certain investments and shows how they can quickly add up.
Is a Financial Advisor Worth the Cost?
It really depends on what you’re getting in return. You might not need a financial advisor if you’re comfortable managing your money, but one can be useful if you need help with taxes, financial planning, and other areas.
If an advisor saves you time by making it easier to handle your finances, the cost could certainly be worth it. But if you’re just paying for services that offer no value, it will be hard to justify this expense.
“I think it can be beneficial to check in with someone who can say, ‘Are you still contributing to your 401(k) plan? Let’s take a look at your investment allocation. Are you still hitting your savings targets?'” says Anspach. “I think that can be a valuable habit to get into.”
How to Compare Financial Advisors
Consider the following when choosing between advisors:
- The services you get: Make sure you know what’s included in the fee you’ll pay. Two advisors might charge the same amount, but one may throw in more services or spend more time working with you.
- Fee structure: Look at what each advisor charges for what they do and the structure they use. You may prefer to pay an annual fee, hourly rate, or a percentage of your assets.
- Total costs: Find out about costs other than the advisor’s fee. Custodial fees, transaction fees, and other expenses can add to your bill.
- Experience: Discover how long an advisor has been in the business and whether they have enough experience with situations like yours. You may need a professional who specializes in a particular area rather than one that covers all bases.
“You want to make sure you don’t feel talked down to, that someone’s not using too much jargon,” says Anspach. “Do you like the way they explain things or answer questions? And does their approach align with you personally?”
Questions to Ask Before You Hire an Advisor
Asking an advisor a few questions before working with them can help you understand what you’re paying for:
- What’s included in my fee? Know exactly what services you will get and what your advisor will manage for you.
- How do you get paid? The advisor should explain their fee structure and how they handle any commissions. “Explain to me how you’re compensated,” says Anspach.
- Are there any extra fees? Inquire about other costs you might have to pay, and whether they come from the advisor or your investments.
- How often will we meet? Ask how regularly you’ll meet your advisor and whether meetings will be in person or online.
- Can I leave at any time? Find out whether there’s a cancellation fee if you decide to end the relationship.
“Don’t be afraid to ask detailed questions,” adds Anspach. “Pay attention to whether an advisor gives defensive answers or clear answers. “You are interviewing someone that hopefully you’re going to work with for 10, 20, 30 years.”
