What are the fees that financial advisors typically charge?

Financial advisors are professionals who offer financial guidance and advice to clients in exchange for compensation. They provide a range of services, including investment management, tax planning, and estate planning. Understanding how financial advisors charge for their services can be confusing for new clients. In this guide, we will explore the five most common ways financial advisors structure their fees.

Key Takeaways

• Financial advisors charge fees for services like investment management, estate planning, and retirement planning.
• Commission-based advisors earn fees from the sale of financial products they recommend.
• Some advisors charge hourly or project-based fees.
• Advisors using assets under management (AUM) fees charge a percentage based on the client’s managed assets.
• Fee-only advisors do not accept commissions and charge based on hourly rates, projects, AUM, or a combination.

Assets Under Management (AUM) Fees

Advisors utilizing an AUM fee structure charge clients a percentage based on managed assets. Clients with more assets pay a lower percentage but a higher total fee.

Setting Expectations: AUM Fees

Traditional in-person advisors typically charge at least 1% of AUM, but robo-advisors have lower rates.

While AUM advisors can be costly, they align their interests with clients by managing portfolios well to grow their share.

Commission-Based Fees

Advisors on commission earn fees from product sales transactions they recommend.

Setting Expectations: Commission Fees

Investors typically do not pay commissions directly; the product sponsor covers them. Commission rates vary by product type.

Some commission-based advisors prioritize selling products, potentially conflicting with client interests.

Hourly Rates

Advisors may charge hourly rates for specialized services based on client needs.

Setting Expectations: Hourly Rates

Hourly rates vary based on advisor experience and expertise areas. Projects like estate planning can cost $2,000 to $5,000.

Rates can vary depending on advisor experience and expertise, ranging from $100 to several hundred dollars per hour.

Flat Fees

Advisors with flat fees list services and corresponding charges. Self-directed investors often opt for flat fees or hourly rates.

Setting Expectations: Flat Fees

Flat fees can range based on service levels, with more complex services commanding higher fees.

Some investors prefer full portfolio control, relying on advisors due to limited financial knowledge.

Fee-Only

Fee-only advisors do not accept commissions, prioritizing unbiased advice based on client goals. They offer fee structures tailored to clients’ needs.

Financial advisor costs vary by firm, fee structure, and location, with hourly rates exceeding $100 and commission percentages often above 1%.

Deciding to hire a financial advisor depends on individual needs and goals. It can be beneficial for those seeking guidance or better investment returns.

Financial advisor fees are negotiable, especially with a sizable investment portfolio. Be prepared to discuss and justify fee adjustments.

The Bottom Line

Consider your needs and preferred level of advisor involvement when evaluating fee structures to find the best fit for your financial goals.

For basic services, hourly or flat fees may suffice, while comprehensive wealth management may warrant an AUM or fee-only arrangement for a long-term partnership.