If you’re looking to manage your finances effectively, a financial advisor can be an invaluable resource. However, one of the most common questions people have is: how much do financial advisors cost?
The answer, unfortunately, is not a simple one. Financial advisors can charge a range of fees depending on their level of experience, the services they offer, and their location. In this article, we’ll explore the various types of fees that financial advisors charge and what you can expect to pay.
Types of Fees Charged by Financial Advisors
- Commission-Based Fees
Commission-based financial advisors earn money through the sale of financial products like stocks, bonds, and mutual funds. They receive a commission on each product they sell, which is typically a percentage of the total value of the product.
For example, if a commission-based financial advisor sells you $10,000 worth of stocks, they may earn a commission of 1% or $100. While this may seem like a small fee, it can add up over time, especially if you’re investing large sums of money.
- Hourly Fees
Some financial advisors charge an hourly rate for their services. This fee structure is most commonly used for one-time consultations or for specific financial planning projects.
Hourly rates can vary widely depending on the advisor’s experience and location. In general, you can expect to pay anywhere from $100 to $400 per hour for a financial advisor’s services.
- Flat Fees
Some financial advisors charge a flat fee for their services, which is often based on the scope of the work they’ll be doing. For example, a financial advisor may charge a flat fee of $1,500 to help you create a retirement plan.
Flat fees can be a good option if you’re looking for a specific service, as you’ll know exactly what you’re paying for upfront. However, it’s important to make sure that the fee is reasonable and that you’re not overpaying for the services you’re receiving.
- Assets Under Management (AUM) Fees
AUM fees are one of the most common fee structures used by financial advisors. Under this model, the financial advisor charges a percentage of the total assets they’re managing for you.
For example, if you have $500,000 invested with a financial advisor who charges a 1% AUM fee, you’ll pay $5,000 per year in fees. This fee structure incentivizes financial advisors to help their clients grow their assets since they’ll earn more money as the assets increase in value.
How Much Do Financial Advisors Charge?
Now that you understand the various types of fees charged by financial advisors, let’s take a closer look at how much you can expect to pay.
According to a 2020 survey by AdvisoryHQ, the average financial advisor fee is 1.18% of assets under management. However, this fee can vary widely depending on the advisor’s experience, location, and the services they offer.
For example, a financial advisor who specializes in retirement planning may charge a higher fee than one who provides general financial advice. Additionally, advisors in larger cities or with more experience may charge higher fees than those in smaller towns or with less experience.
Here’s a breakdown of the average fees you can expect to pay based on the fee structure:
- Commission-based fees: 1-5% per transaction
- Hourly fees: $100-$400 per hour
- Flat fees: $1,000-$5,000 per project
- AUM fees: 0.5%-2% of assets under management
It’s important to note that these fees are averages and that the actual fees you’ll pay will depend on a variety of factors. You should always ask potential financial advisors for a breakdown of their fees before signing on with them.