Financial Advisor Cost

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 15, 2022

Fee Structures of Financial Advisors

Financial advisors assist clients in developing long-term plans for increasing wealth, controlling risk, and various other financial decisions and challenges. 

Financial advisors are usually compensated through the following fee structures:

Percentage of Assets Under Management (AUM)

Financial advisors charge fees as a percentage of the assets they manage for their clients. This fee structure is famous among investors because it aligns with an advisor’s motivation to increase their client’s investments.

Hourly Rates

Some financial advisors offer hourly or time-based counsel. It offers a flexible way of providing service and makes the most sense for those who only need occasional, short-term advice or periodic assistance.

Flat Fees

Flat-fee financial advisors typically offer a one-time service such as developing and implementing an investment plan. Flat fees are also favored by those who need help getting started and do not plan on having a continuing relationship with a financial advisor.

Commission-Based Fees

Commission-based advisors receive commissions for selling financial products such as insurance policies, stocks, and bonds. The commission will be included in the cost of the product and passed on to the customer.

Fee_Structures_of_Financial_Advisors

Aside from the abovementioned fees, financial advisors may demand performance fees on top of management costs. The charge is a portion of the return. Adding performance fees may encourage advisers to seek greater returns for their clients. 

But they may also encourage them to take unnecessary risks that could result in losses.

Average Cost of Financial Advisors

The following cost of financial advisors according to fee structure are based on the 2022 average.

Average_Cost_of_Financial_Advisors_2022

Ways to Minimize Financial Advisor Fees

There are ways to lower the cost regardless of your financial advisor's fee structure. Here is some advice:

Choose an Appropriate Fee Structure

The fee structure should align with your financial needs. Consider the type of advice you seek, the number of times you will be consulting them, and the complexity of your financial situation.

You can use negotiating tactics such as asking for a lower rate or including additional services in the agreement. Feel free to ask for a better deal.

Research and Compare Fees

It is essential to research and compare different advisors' fees thoroughly. Be sure to read the fine print for details on any additional costs that are not in their base fee.

Monitor Your Investments Regularly

When you monitor your investments regularly, you can identify potential problems before they become costly. In this way, you can keep your financial advisor fees in check.

Robo-Advisor Fees vs Traditional Advisor Fees: Which Is For You?

The choice of advisor depends on the type of assistance you require and your financial resources. Traditional advisors are often more expensive than online alternatives.

For simple investment goals, Robo-advisors may be a cost-effective option. They charge lower fees than conventional advisors and provide an automated, algorithmic approach to managing your investments.

On the other hand, if you have more complicated investment goals or require advice about non-investment-related matters, then a traditional financial advisor may be the better option. They provide personalized advice.

Both advisors offer portfolio management, but only conventional financial advisors cater to services related to estate, insurance, and retirement planning. Make sure to know what services you need.

Traditional advisors usually charge higher fees. Their average AUM percentage is 0.5% to 2.0%, while Robo-advisors are less than 0.5%.

Financial_Advisor_Options

How to Choose a Financial Advisor

Working with a financial advisor is a sensible option for anyone who wants to organize their money and establish long-term goals; they are not just for the wealthy. To locate the ideal financial advisor for your requirements, follow these steps.

Step 1: Understand What Financial Services You Need

It is essential to understand the services you require from a financial advisor before deciding. Consider your current financial goals and needs to define the advice you are looking for.

Step 2: Select Which Type of Financial Advisor You Need

Financial advisors can have different specializations, from those offering retirement planning to those focusing on estate planning or tax advice. Choose an advisor that can meet your needs and has the experience and qualifications you are looking for.

Step 3: Consider How Much You Can Pay

The cost of financial advice varies greatly depending on the type of services you need, the advisor's experience, and the advisor's fee structure. Make sure you understand the costs associated with each service. Your capacity to pay is an essential consideration before deciding.

Step 4: Research Financial Advisors

Once you have a list of potential advisors, research their credentials and experience. Ask friends or family members for recommendations. Explore their websites to see their services, read reviews, and learn more about their background.

Step 5: Interview Multiple Financial Advisors

Interviewing multiple advisors is essential to ensure you find the right fit. Ask questions about their experience and services, fees, and any other information you feel is necessary. Pay attention to how they communicate with you and get references from past clients. 

How_to_Choose_a_Financial_Advisor

Final Thoughts

Financial advisors are professionals who offer an extensive range of services to help manage your finances. The cost of hiring an advisor depends on the services you agree to.

Financial advisors' most common fee structures include AUM percentage, hourly rates, flat fees, and commission-based fees.

In 2022, the average cost of getting financial advisor services is expected to be 0.5% to 2% of your AUM. Consultation with them would cost $200 to $400 per hour.

Financial advisors charge a flat fee of $1,000 to $3,000 for a one-time service. They impose a 3% to 6% fee on the products they sell for commission based.

It is essential to carefully research and compares fees before selecting a financial advisor. You may also negotiate and ask for a lower fee or additional services included in the agreement to make the most of your money.

To select the right financial advisor, you need to understand what services you need and research potential advisors. Consider the amount you can afford to pay and thoroughly interview multiple financial advisors before selecting one.

By following these tips, you can guarantee that you make the most out of your financial advisor at the best possible rates. Understanding your options and using negotiation strategies will help minimize the cost of working with a financial advisor.

FAQs

What is the average cost of a financial advisor?

The average cost of working with a financial advisor in 2022 is 0.5% to 2.0% of the assets they manage, $200 to $400 hourly consultation, a flat fee of $1,000 to $3,000 for a one-time service, a 3% to 6% commission fee on the products that they sell.

What are the additional financial advisor costs?

In addition to the average cost of working with a financial advisor, additional costs may be associated with their services. These can include performance-based fees, account set-up fees, annual maintenance fees, research and analysis fees, and other miscellaneous or management fees. It is essential to understand all the costs of hiring a financial advisor before making a decision.

How do you ensure that a financial advisor's cost is fair?

It is helpful to compare fees and services offered by different advisors to make an informed decision. Negotiating with your potential advisor can also minimize the costs associated with their services in the long run. Additionally, researching any promotions or discounts available can be a great way to save money.

How are financial advisors paid?

Financial advisors' most common fee structures are AUM percentage, hourly rates, flat fees, and commission-based. It is helpful to understand what type of fee structure your advisor uses so you can be sure that their services align with the cost.

How much do Robo-Advisors charge?

Robo-advisors typically charge a lower fee than traditional financial advisors. They usually charge between 0.25% and 0.50% of assets under management.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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