The cost of a financial advisor varies depending on a number of factors, including how much money you invest and what type of financial advisor you choose to work with.
Here’s a breakdown of what you can look forward to when working with a financial advisor and what to look for when buying one.
What services do financial advisors offer?
Traditional Financial Advisors
A traditional financial advisor is a person licensed to provide investment advice. Some financial advisors are Certified Financial Planners (CFPs), which is one of the highest levels of financial planner certification.
Two other reputable certifications are Chartered Financial Analysts (CFA) and Chartered Financial Consultants (ChFC).
A financial planner or consultant offers a variety of services, including:
- Retirement planning
- Tax planning
- savings for college
- estate planning
- Budgeting and debt repayment
Many financial planners specialize in certain areas. For example, someone may prefer to work with young families, while someone helps those who are retiring.
A financial planner can answer most of your money-related questions, or at least direct you to the appropriate resource. They can also create specific plans based on your goals.
Most financial planners can also physically manage your investments for you, choosing where to invest and how to diversify your portfolio. They can then take ownership of that investment or give you a roadmap to follow on your own. Financial planners may work for a large company or work alone in private practice.
The best financial planner will have a fiduciary duty. A fiduciary duty is a legal obligation to recommend only the best products and investments available, not products and investments that could earn the financial planner a higher commission. Before choosing a financial planner, make sure they are trustworthy.
Read more: Best Financial Advisors
Robo-advisers
Instead of human advice, the robo-advisor uses algorithms to determine how you should invest. When you open an account with a robot advisor, the system asks you a series of basic questions about your age, income, family size, and desired retirement age. You will also be required to provide a list of your current assets and liabilities.
It will then use this information to determine where and how much you should invest. You can set up automatic transfers from your bank account to a robot advisor that will invest this money for you.
The fees for robo-advisers are less than for personal financial planners, so getting started can be easier. If you can’t afford the high fees associated with a personal financial planner, a robo-advisor is a better fit.
Some robo-advisers may also offer access to qualified financial planners so you can ask specific questions and get personalized answers. Please note that you may have to meet certain investment thresholds in order to use one of these services, and you will often have to pay a separate fee. For example, Personal Capital only offers financial planning services to those with at least $100,000 in investment assets.
Read more: The best robo-advisers
How much do financial advisors cost?
Personal financial planners
Individual financial planners may charge for their services in several different ways. Here are the most common types of fees you will see:
Assets under management
If you want a financial planner to personally manage your investments, you pay him an Assets Under Management (AUM) fee. The average fee for this service is 1% AUM. For example, if you have a $200,000 investment portfolio, you will pay $2,000 per year.
Clients who are uncomfortable managing their money may prefer this AUM model. However, it may be cheaper to figure out how to manage your investments yourself. You can hire a financial planner to create an investment plan for you, and you can learn the ins and outs of moving that money yourself.
Hourly
Many financial planners, especially those with fiduciary responsibilities, charge clients by the hour. The average hourly rate is between $200 and $400.
When you meet with a financial planner on an hourly basis, you will be billed for the total number of hours spent with them. Some may have an hourly minimum that you must reach in a session, such as two hours. You may receive free or limited email support after the meeting, depending on the scheduler.
Read more: 13 Questions to Ask at a Financial Advisor Interview
Rack
Some planners offer an upfront payment model where you can pay a set fee and get access to a limited number of tips and tricks. If you do not use their services, you usually cannot move this time to the next year.
The cost of a fee from a financial planner is often between $2,000 and $7,500 per year.
Project Based
Clients often hire financial planners to help them put together a comprehensive financial plan that will include advice on where to invest and how much to save. If you have access to an employer-sponsored retirement account such as a 401(k), they can evaluate the funds available in the plan and recommend an investment strategy.
The typical cost of a project or plan is between $2,500 and $3,000. This usually does not include following the plan’s recommendations, which are the responsibility of the client.
commission
Some financial advisors get paid when you buy a recommended product. Commissioned consultants will recommend investment products with a loading fee that can range from 3% to 6%.
While commission-based financial advisors may seem like the least expensive upfront option, they often won’t recommend the best products for you. They can offer investments with the highest fees even if there are better options.
Annual fee
Some planners choose to charge a flat annual fee for investment management services instead of charging AUM. For wealthy clients, this fee may be more beneficial than paying through AUM. However, you will still pay an average of $1,000 to $5,000 per year.
Read more: How to Get a Financial Advisor If You Have a Low Income
Robo-advisers
Most robo advisors charge an annual fee as a percentage of your invested assets. The commission will vary depending on the specific robo-advisor, but is usually between 0.15% and 0.30%.
For example, Vanguard Digital Advisor charges just 0.20% but has a $3,000 minimum investment, which is higher than most robo advisors. On the other side, personal capital charges 0.89% for invoices up to $1 million. acorns is one of the few robo-advisers that charges a fixed monthly fee regardless of the investment amount – $3 or $5.
Summary
You can expect to pay anywhere from $1,000 to $7,500 (or more) per year for the services of a financial planner. The specific fee will depend on how you want to get advice, how much money you have invested, and what type of financial planner you choose.
But if you’re comfortable managing your investments yourself, you can save money by avoiding the fees associated with hiring a professional.