How Much Does a Financial Advisor Cost?

The cost of a financial advisor can vary depending on several factors, including the advisor's experience, expertise, the services they offer and the level of service you require.

Hiring a financial advisor or adviser can provide valuable insight and guidance when it comes to managing your finances, planning for the future and securing your financial goals. However, many people are hesitant to seek out the services of a financial advisor due to concerns about cost. So, how much does a financial advisor actually cost?

Financial advisors and financial planners come in different shapes and sizes, meaning they also come with different pricing and costs. Financial advisors and wealth managers are no longer reserved for the extremely wealthy and are readily available to anyone who needs expert advice on managing or planning their assets and investments.

Depending on your individual needs, advisors can charge a flat rate — usually between $1,500 and $5,000 — for a retainer, a percentage of your assets — if they are actively managing an investment portfolio — or an hourly fee for case-by-case clients. In this guide, Benzinga discusses what you need to know about the cost of financial advisors.

Financial Advisor Fee Structures

The U.S. Securities and Exchange Commission (SEC) defines six services financial advisors might have in their compensation structure:

• A percentage of assets under management (AUM)
• Fixed fees
• Performance-based fees
• Hourly charges
• Commission-based fees
• Subscription fees

The first four types are the most common. Percentage of assets under management is by far the most common fee structure, being offered in over 95% of all registered financial advisor firms in the US. If you have a strong preference for one type of fee structure, most firms will offer one or more types of compensation. In terms of actual costs, what you ultimately pay will likely come down to what services you are looking for and how many assets you need to have managed. You should expect to pay the following for each type of payment structure:

Percentage of Assets Under Management: 1 to 2%

When you are looking for portfolio management or investment advice, the most common way to pay for services is as a percentage of your assets under management. The more you have to manage, the more you have to pay. It is unlikely that you will ever have to pay a fixed fee or retainer just for portfolio or investment management unless you have an account balance below the adviser’s minimum for managing accounts.

Fixed Fees Cost: $2,000 to $7,500 per year or $100 to $300 per hour

Fixed fees are usually offered for financial planning services rather than portfolio management. If you wanted to create a financial plan to get ready for retirement or you had a financial situation and needed assistance, a fixed fee would be the most likely way you would be charged.

Fixed fees can generally be charged on an hourly or annual retainer basis. If you have a unique, one-time financial situation and need consultation, you may be charged an hourly rate with your financial advisor. If you are looking to create a long-term plan with a CFP® or other financial planner, then you will likely be charged an annual retainer.

Performance-Based Fees Cost: A Percentage of Your Investment Profits

The third most common form of financial advisor fees is performance-based. You pay this fee if your advisor does a superb job and earns you profits on your investments. The exact cost of a performance-based fee will need to be decided between you and your advisor, but they are generally a percentage of the profits.

It is important to note that in the vast majority of cases, performance-based fees will be tacked onto a percentage you already pay based on your assets under management.

Financial Advisor Fees By Service

Financial advisors come in different types, such as robo-advisors, online financial planning firms, and traditional financial advisors. The cost of service varies depending on the type of advisor selected.

Robo-advisors

Robo-advisors have grown in popularity in just the past five years. Three of the top 10 largest financial advisors are now robo-advisors. The appeal of robo-advisors likely stems from their reduced cost relative to human adviors.

A robo-advisor may not be for everyone. If your goal is to have a place to invest your money every so often and entrust a robo-advisor algorithm to let it grow passively over time, then a robo-advisor may be for you. If you are looking for something more hands-on, such a financial planner to actually walk you through a financial plan for your future, then a human advisor is your best bet.

Cost: Robo-advisor fees are generally less than 0.5% of your assets under management, which is upwards of 2 to 3x less than you would get with a human advisor.

Traditional Financial Advisors

Traditional financial advisors provide a range of financial services, including investment advice, retirement planning, and wealth management. They often work for financial institutions and have a fiduciary duty to act in the best interest of their clients. A financial advisor is a broad term that encompasses various credentials, including investment advisors. However, it is highly recommended to work with a Certified Financial Planner (CFP) due to their deep expertise and comprehensive understanding of financial planning.

Cost: Human advisors charge different types of fees based on the services provided and the client's financial situation, as specified in the table above.

Online Financial Planning Firms

Online financial planning services combine the benefits of robo-advisors and traditional financial advisors by offering virtual, customized financial planning alongside investment management. These services can have zero to a few hundred thousand dollars account minimums.

Cost: Online financial planning firms typically charge an AUM fee ranging from 0.30% to 0.89%, or a flat annual fee starting at $2,000. There may be separate fees for investment management and financial planning services.

Other Financial Advisor Costs to Consider

While the fee you pay to your financial advisor is important, it’s equally important to consider the costs associated with the investment products they recommend. After selecting a financial advisor, they will likely suggest mutual funds or exchange-traded funds (ETFs) for you to invest in. These investment vehicles come with their own set of fees, which can impact your overall returns. Some funds may have an additional 1 percent annual fee, while index funds typically have lower fees ranging from 0.10 percent or less.

It’s essential to inquire about the fees associated with the funds recommended by your advisor. Understanding these fees will help you assess the overall cost of managing your investments and the impact they may have on your returns. Ask your advisor if there are index funds available that can be used in your portfolio, as they tend to have lower fees compared to actively managed funds.

How to Determine How Much Your Financial Advisor Costs

The best way to see how your adviser firm charges clients is to look at their Form ADV on the SEC.gov website. Every financial adviser company in the country has its information listed for public consumption on the SEC website. Specifically in section 5, question E of the Form ADV, you will be able to see how your potential advisory firm charges clients.

To see how much your advisor charges, you will need to dig into its Part 2 Brochure, which can also be found on the SEC website. The Part 2 Brochure can be dense The most effective way of ascertaining your financial advisor’s cost is by asking them. Before committing any finances to an advisor, you should have them run through their pricing in explicit detail. Understand all potential costs before making your decision to invest time and money with them.

Why a Financial Advisor's Fee Structure Matters

A financial advisor's fee structure matters because it directly impacts the investor's returns and overall financial health. Different fee structures, such as commission-based or fee-only, can result in significantly different outcomes in terms of costs and the quality of advice received. Investors need to carefully consider how their financial advisor is compensated to ensure that the advice provided is in their best interest and not influenced by potential conflicts of interest. Before hiring a financial advisor, ask these questions and understand the following terms:

• Fee-only advisors: These advisors are the ones least likely to have a conflict of interest. They do not collect money based on things they may sell to you. They only collect fees from the amount of assets you have under management or from fixed fees. Fee-only advisors are always fiduciaries, which means they have your best interest in mind.
• Fee-based advisors: They are similar to fee-only advisors, except they can also earn money from commissions; however, they are always fiduciaries.
• Commission-based advisors: These advisors can only earn money from commissions they make by selling you financial products, but they do not necessarily have to be a fiduciary. Benzinga advises customers to be wary of commission-based advisors and to make sure they are registered fiduciaries. If they are not a fiduciary, they may sell you products against your best interest only because they will earn a commission from the sale.

Financial Advisor Costs Demystified

The cost of financial advisors can vary depending on their fee structure, which includes options such as a percentage of assets under management, fixed fees, performance-based fees, hourly charges, commission-based fees or subscription fees. It's important to ask about their fee structure and make sure you understand how their services are priced before choosing a financial advisor.

Frequently Asked Questions