How Much Does a Financial Advisor Cost?

Navigating through the financial world can be challenging. Should you invest in stocks? What about buying a house? These are big decisions that require careful planning and execution. That’s where a financial advisor can help.

Financial advisors can provide guidance and advice on managing your money and reaching your financial goals. But how much does a financial advisor cost, and what should you expect from their services?

In this blog post, we’ll explore the different types of financial advisors, the fees they charge, and when it’s worth paying for their services.

Types of Financial Advisors

There are three types of financial advisors: human advisors, robo advisors, and hybrid advisors.

Human advisors provide one-on-one advice. The benefits of working with a human advisor are that they can provide personalized guidance based on your specific situation and goals. They can also help you stick to your financial plan. The downside is that they can be expensive.

Robo advisors are online services that provide automated investment advice. They are cheaper and more accessible than human advisors but lack the personalized approach you get from working with a real person.

And as the name implies, hybrid advisors offer a combination of human and robo advisory services. They also combine some of their benefits at costs that typically come in the middle of the general price range.

Fee-Only vs Fee-Based vs Commission-Based Fees

Financial advisors are compensated in three ways:

  • Commission-based – Get paid through the investments they sell.
  • Fee-only – Charge an annual, hourly, or flat fee.
  • Fee-based – Еarn a combination of a fee and commissions.

Commission-based financial advisors earn money by selling you certain products such as insurance or investment vehicles and receiving a percentage from the sale.

Commission-based advisors are typically cheaper than fee-based or fee-only advisors, but you need to be careful about how they are compensated. This can create a conflict of interest, as the advisor may be more likely to recommend products that earn them a commission.

Fee-only advisors only charge for their services. Their fees could be flat, hourly, or performance-based. But the most common fee-only financial advisor structure is to charge a percentage of the assets under management (AUM).

Fee-only advisors usually charge the highest fees, but their fee structure eliminates any potential conflict of interest and ensures that their recommendations are based on your best interests.

Lastly, fee-based advisors charge a fee for their services but may also accept commissions from investments sold. While this may sound like double costs, it actually just offers more flexibility and access to a wider range of investment options.

Average Cost of a Financial Advisor

When trying to figure out whether you should use professional guidance, the natural first question would be – how much does a financial advisor cost. So let’s clear that matter, detailing the average fees based on the type of advisor you choose.

Human advisors

Human advisors typically charge fees ranging from 0.50% to over 2% of AUM per year, depending on the type of advisor and your location. The average is around 1%.

For example, if you have assets worth $100,000 with an advisor charging 1% of AUM, you’d pay $1,000 per year in fees.

Traditional advisors can also charge a flat annual fee, ranging from $1,000 to $5,000, or an hourly fee between $100 and $400. The cost usually isn’t linked to how much you have available to invest, but you may pay more if your situation is complex. For creating a financial plan, advisors may charge $1,000 to $3,000.

When it comes to commissions, they vary by investment product. For example, mutual fund sales loads generally fall between 3% and 6% of your investment. This is a one-time fee paid out of your pocket at the purchase or sale of the fund.

If you’re looking for personalized advice and don’t mind paying a bit extra, a human advisor may be right for you. The cost of hiring a human advisor includes their time and expertise, but there are often additional costs such as the fees for mutual funds or insurance policies that they may recommend.

It’s important to understand how these extra charges will affect your overall returns before investing money with an advisor. In some cases, it may be better off investing directly into low-cost index funds instead of paying high fees that eat away at your returns.

Another important consideration is that some human advisors don’t accept clients with investment accounts worth less than a certain amount (typically around $250,000). This is because they don’t think the fee they would collect on a small balance is worth their time.

Robo advisors

Robo advisors typically charge a percentage of AUM. The average is around 0.25% – significantly lower than their traditional counterparts. This works out to $250 a year on a $100,000 account balance.

Robo-advisors often require no or a low account minimum, so it’s easy for beginners to start investing.

Hybrid advisors

Hybrid advisors typically charge an AUM fee ranging from 0.50% to 1.5%, depending on the level of financial advice provided. The service may also cost a flat annual fee of between $500 and $1,000.

Overall, hybrid advisors offer automated investment management, plus ongoing access to human financial planners for somewhat less than the cost of a traditional in-person advisor.

When Is It Worth Paying for a Financial Advisor?

For many people, the cost of hiring a traditional financial advisor outweighs its benefits. There are cheaper alternatives available, like robo advisors and online courses on how to manage your finances. If you’re looking for an inexpensive way to invest, you can also consider investing on your own with index funds through an online broker like Charles Schwab.

But if you have complex needs such as tax planning or estate planning, it may be worth hiring a financial advisor. They can help you save money and time by providing expert advice and solutions tailored to your specific situation.

Also, if your portfolio needs diversification but you’re not sure how to balance it right, getting some guidance is a much better option than the trial-and-error method.

Bottom Line

In conclusion, there are many factors to consider when deciding whether or not to hire a financial advisor. Fees, type of advisor, and the complexity of your finances are all important considerations.

Hopefully, you’re now better informed to make a decision and set the right expectations when hiring a financial advisor.

FAQ

What is a financial advisor?

A financial advisor is a professional who helps you manage your money, set financial goals, create plans to achieve them, and decide how much risk to take with investments. Financial professionals can also advise how best to save for retirement or how much life insurance you may need.

How much does a financial advisor cost?

Human advisory fees vary greatly, depending on their compensation structure and location, as well as the complexity of your situation and your investment account type. The average AUM fee is 1%, while hourly rates are between $100 and $400. Robo advisors charge significantly less – around 0.25% of AUM, while hybrid advisors cost at least 0.50% of AUM.

Are financial advisors worth paying for?

It depends on your needs. If you have a simple financial situation and don’t need complex advice, a robo advisor may be all you need. However, if you have a more complicated financial situation or want personal guidance, hiring a human advisor is likely worth the cost.

What are the different types of fee structures for financial advisors?

There are three main types of fee structures for financial advisors: commission-based, fee-based and fee-only. Commission-based advisors get paid a commission from the products they sell, while fee-based advisors charge a flat rate or percentage of your portfolio value each year. Fee-only advisors don’t receive commissions or fees from any products but charge a flat rate for their services.

What are the benefits and downsides of each fee structure?

Commission-based advisors typically have lower fees than other types of advisors, but they can also be more motivated to sell you products that might not be in your best interest. The fee-based compensation structure suggests a more objective approach and greater investment flexibility than the commission-based one. Meanwhile, fee-only advisors typically charge the most but offer completely unbiased advice. The way they get paid also motivates them to accept clients with larger assets, which restricts some novice investors and those with more modest funds.

What are the different types of financial advisors?

There are three main types of financial advisors: human advisor, robo advisor, and hybrid advisor. Human advisers spend time getting to know you personally before creating an investment plan tailored specifically for your needs. They also provide ongoing support as needed.

Robo advisors are automated programs that create an investment plan based on factors such as your risk tolerance. They don’t provide any ongoing support or advice beyond this initial process though so it’s important not to be too reliant on them.

Hybrid advisers combine both human and automated elements into one service. They’ll spend time getting to know you and create a plan tailored specifically for you, but they’ll also use robo advisor technology to periodically rebalance your portfolio.

When is it a good idea to hire a financial advisor?

If you’re looking for personal advice on how best to invest your money, then hiring an adviser might make sense. Advisers can help with things like how much risk you should take in your investments and how long until retirement so that they’re able to fit different factors together to create a well-rounded financial plan. They can also provide advice on how to save money and reduce your taxes, both of which can be important when trying to reach long-term financial goals.

Hiring an advisor may not be the right choice for everyone – especially if you’re comfortable managing your own investments and don’t need help making decisions about how best to save for retirement or other long-term goals. But if you’re looking for personal advice on how best to invest your money, then hiring an adviser might make sense.

ABOUT AUTHOR

After I got my degree in translation and interpreting, I started working in a typical office. To get away from my nine-to-five job, I ventured into freelance writing. One thing led to another, and I ended up creating content for SpendMeNot. I have been involved with this site ever since its launch — first as a writer and now as a manager.

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