Hiring a financial advisor could be key to reaching your financial goals quickly and effectively. Some financial advisors charge a flat annual rate ranging from around $1,000 to $7,500, while others take 1% of your assets under management or charge hourly rates.
The cost of a financial advisor can vary based on the services you need and the amount of assets you have. Here’s a closer look at what you can expect to pay for financial advising.
Financial Advisor Fee Structures
There are a few different ways professionals can be paid for giving financial advice. An advisor’s fee structure influences how much it’ll cost you to work with them.
Here are a few common fee structures to understand:
1. Percentage of Assets Under Management (AUM)
Many advisors will charge you based on the amount of assets they manage for you. If you’re working with a traditional, in-person advisor, expect to pay 1% of AUM The more assets you have, the lower the percentage tends to be.
In-Person Advisor
For example, take a look at the chart below, which shows annual advisor fees for one of the largest registered investment advisors (RIA) in America:
| Assets | Annual Fee |
| $0 – $400,000 | 1.75% on the first $400,000 |
| $400,001-750,000 | 1.25% on the next $350,000 |
| $750,001 – $1,000,000 | 1.00% on the next $250,000 |
| $1,000,001 – $3,000,000 | 0.75% on the next $2,000,000 |
| $3,000,001 – $10,000,000 | 0.60% on the next $7,000,000 |
| $10,000,001 – $25,000,000 | 0.50% on the next $15,000,000 |
| $25,000,000 + | Negotiable |
Using this fee structure, with an annual fee of 1.75%, you would pay $1,750 a year.
Digital Advisor
Note that if you’re working with a virtual financial advisor with a similar fee structure, you’ll likely pay lower fees. For example, JP Morgan Personal Advisors charges 0.40%-0.60% for its digital financial planning services.
INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Robo-advisor
Many robo-advisors also follow the AUM model, though the management fees are much lower: between 0.25% and 0.50%, and some don’t charge a fee at all.
Robo-advisors are able to charge lower rates because they use an algorithm to build and rebalance your investment portfolio rather than employing human advisors.
Here’s how much some of the most popular robo-advisors charge:
- Betterment:25% per year or $4 monthly fee
- Ally Invest:30%
- Wealthfront: 25% per year
- SoFi: 0% per year
2. Flat fee
This is a set monthly or annual fee (retainer), which can be anywhere between $1,000 and $8,000, depending on what type of advisor you’re working with and how complicated your financial situation is.
Again, a virtual advisor will likely cost less than working with a traditional, in-person advisor. Facet Wealth, which offers virtual financial advising from certified financial planners, follows this fee structure and charges between $2,000 and $8,000 a year, depending on the complexity of the client’s finances.
3. Per Plan Fee
Some advisors will charge a flat fee for creating a personalized financial plan for you. The average cost ranges between $1,000 and $3,000. You won’t receive any ongoing investment advice—just the plan.
This type of service could be the right fit if you want to pay a one-time fee for a comprehensive plan and don’t think you’ll need professional investment management or consultation for financial decisions.
This option only makes sense if it’s going to be significantly less expensive than paying for an advisor who provides a plan and will work with you consistently throughout the year.
If the price difference isn’t significant, it’s probably worth it to work with a fiduciary who provides ongoing advice in addition to a financial plan.
4. Hourly Fee
This fee structure is just as it sounds: You’ll be charged by the hour, and rates tend to range anywhere from $100 to $400.
If you go this route, you pay for the time you need. You won’t get ongoing advice, as an advisor charging an AUM fee or flat fee would provide, but you can ask any questions you’d like about your financial situation and investment portfolio.
For example, you might pay for a call with a certified financial planner to discuss your general financial situation, college planning, marriage planning, or retirement planning, depending on the package you select.
5. Commissions
With commission-based advice, your advisor can make money whenever they sell you certain securities, annuities, or other insurance products. Their earnings, which can be anywhere from 1-6% of your investment, come from your wallet.
Today, most advisors charge fees based on the services they offer rather than collecting payments based on which products they sell.
A commission-based fee structure could lead to a conflict of interest. That said, if you already have a portfolio created that requires few changes, then a commission-based account could be a low-cost option.
Most advisors who are paid on commissions today are “hybrid advisors,” so they may receive a commission on insurance products they recommend and charge an additional fee on their client’s assets.
If you hire a hybrid advisor, it’s crucial to understand how your advisor is getting paid for each type of investment they recommended.
Financial Advisor Fees by Service Type
Once again, the type of advisor you work with can significantly impact cost. Here are the three main types of advisors, in order of least expensive to most expensive:
Robo-Advisor Cost
- Fees: You can expect little to no annual management fees (between 0% and 0.50%) for a robo-advisor’s services.
- Services: Using an algorithm, robo-advisors build a diversified portfolio of low-cost funds fit for your situation based on your risk profile, investing goals, and unpredictable forces like market volatility and asset class performance. They also automatically rebalance your portfolio as you get closer to your goals.
Virtual Financial Advisor Cost
- Cost: Expect to pay a flat subscription fee or a percentage of your assets (or both). Virtual advisors cost more than a robo-advisor but less than a traditional advisor.
- Services: With a virtual financial advisor, you’ll get access to a human financial advisor but will communicate with them via video chats, email, or phone.
Traditional Financial Advisor Cost
- Cost: Expect to pay between 1% to 2% of your assets under management with a traditional advisor, though some may charge a flat fee or hourly fee. Keep in mind that most traditional advisors require a high minimum balance.
- Services: A traditional financial advisor provides more than automated portfolio management, creating a comprehensive and individually tailored financial plan. They can advise you on everything personal finance-related, from how to create a budget to paying off credit card debt, planning for retirement, and getting insured.
Fee-Only vs. Fee-Based vs. Commission Only
These terms sound similar but mean very different things.
- Fee-only advisor: A fee-only financial advisor doesn’t earn commissions. They get paid by charging an AUM fee or a flat fee (or both).
- Fee-based advisor: A fee-based advisor, on the other hand, charges a fee but can also earn commissions based on your investment selections.
- Commission-only advisor: A commission-only advisor, makes money when they buy or sell an investment for you.
Remember, it’s best to work with a fee-only advisor, as there’s less potential for conflict of interest when they’re offering advice. It’s also important to work with a fiduciary as they are legally required to act in your best interest.
Understanding How Financial Advisors Are Paid
You can tell a lot about your financial advisor based on their fee structure. Ask prospective advisors: “How do you get paid?” “Are you a fee-only advisor or fee-based?” “Do you earn commissions?”
You can also look at Form ADV, which is a document that all financial advisor firms with more than $25 million in AUM have to file with the SEC. It contains extensive information about the firm, including its fee structure. Specifically, look in Section 5 of Part I of the form for the types of fees that the firm or brokerage charges clients.
Before you hire anyone, you can ask them to put their rates in writing so you know exactly what it’s going to cost you to hire them. In most cases, avoid working with advisors who earn commissions to avoid possible conflicts of interest.
The Hidden Costs of Working with a Financial Advisor
Whether you’re working with a robo-advisor or a living breathing CFP or wealth manager, chances are you’ll owe more than just the flat fee or AUM fee that they charge.
That’s because when you invest in mutual funds and ETFs, you’re charged an expense ratio to cover operating costs.
If you’re working with a robo-advisor, most will invest your money in low-cost funds with expense ratios under 0.10%.
If you’re working with an advisor, ask them to explain the expense ratio of the fund you’re invested in and any other investment costs you’re paying. After all, these fees vary widely and can exceed 1%, which adds up over time.
How to Minimize Financial Advisor Fees
If all you need is help with your investments, start with a robo-advisor, which also typically provides access to helpful financial planning tools like retirement calculators or budgeting tools that help you plan for big purchases.
It’ll save you a ton of money and you can hire a human advisor later on if your financial situation ever becomes more complex.
If you want to work with an actual person but your budget is tight, start with a one-time meeting with an advisor who charges by the hour. You may only need one meeting to feel like you’re in a good place financially.
Or, maybe you’ll realize this is an investment that will pay off significantly and decide to work with an advisor consistently. If that’s the case, you may be able to keep annual costs down by working with a virtual advisor.
Finally, you can always negotiate the price with a prospective advisor.
How to Choose the Right Financial Advisor
The type of advisor you settle on also depends on your budget, needs, and net worth. Here are a few pointers to help you choose the right advisor.
How to Choose a Robo-advisor:
- Is there a minimum balance required to invest? Most robo-advisors let you start investing with $500 or less, but others require much more.
- What is the management fee? Again, this should be between 0.25% and 0.50%, though some don’t charge a fee at all.
- What are the investment options? Most robo-advisors offer between five and 10 portfolio choices based on risk tolerance (they’ll range from conservative to aggressive). The more options, the better.
- What types of accounts does the robo-advisor manage? Typically, a robo-advisor will manage individual retirement accounts (Roth, traditional, and SEP IRAs) and taxable accounts. Some will also manage your 401(k) and trusts.
How to Choose a Traditional or Digital Advisor:
If you want advice beyond investing and have questions about topics like picking employee benefits, tax planning, or estate planning, you’ll probably want to work with a human advisor (virtually or in person).
When it comes down to finding a great virtual advisor or traditional advisor to work with, you’ll need to spend time researching your options.
Start by looking up advisors in your area using The Financial Planning Association’s website, The National Association of Personal Financial Advisors’ website, and The Certified Financial Planner Board of Standards’ website. These sites provide an advisor’s certifications and background.
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