How much does a financial advisor cost?
The nationwide average cost to hire a financial advisor falls between $150 to $300 per hour. It's worth noting that different financial advisors charge for their services in different ways. One could charge a flat fee of a few thousand dollars for helping you put together a comprehensive financial plan, another an hourly fee for a quick life insurance review, and others an asset or investment management fee based on a percentage of whatever stocks, bonds, or other financial instruments they oversee, usually around 1%.
The cost all depends on what financial advice and services you need. Your advisor's financial planning services could include a comprehensive strategy for managing your wealth, from tax planning to investing, or advice on one specific aspect of your financial situation. Most also offer planning services to help you save for some of life's most important events, like purchasing a house, estate planning, or sending children to college.
Financial advisors mainly charge a percentage of the assets they manage and an hourly or flat fee for their time.
If you have a one-time project that only takes a few hours, like making sure you have the right kind and amount of life insurance or reviewing your investment portfolio, that could cost you a couple hundred dollars. If you need ongoing investment management for a quarter of a million dollars, you could be looking at an account management fee of tens of thousands of dollars.
Let's go over a few of the most important factors that affect the cost of a financial advisor.
Amount of assets
Some financial advisors charge an annual assets under management (AUM) fee. The AUM fee is typically 1% of the assets they oversee per year. That means if you're an investor with $750,000 worth of investments you want an advisor to manage, they would charge you a $7,500 annual fee.
This AUM fee decreases the more you invest, as advisors provide a discount for high net worth individuals based on the higher profits their large account balances generate. Financial advisors may charge a higher percentage fee to manage lower account balances – think those under $500,000 – to compensate for the smaller total fees.
Time
Projects that take less time cost less money. Your financial advisor will charge a lower advisor fee to help you make a one-time adjustment the risk of your investment portfolio than create a comprehensive financial plan complete with ongoing advice.
You will also likely pay more for your first session, and less for any follow-ups. Fee-only financial planners charge between $1,000 and $2,000 to put together a comprehensive financial plan. For ongoing advice, they usually charge around $200 per month.
Some financial advisors offer a wide variety of services, while other specialize in a few areas. Below are several different types of investing and financial planning support you might need:
General financial planning
Your financial advisor can take a holistic look at your income, debts, and assets to create a plan to reach your financial goals.
Retirement planning
From setting savings goals to determining which kind of retirement savings account (401k, IRA, etc.) is right for you, financial advisors simplify planning for retirement. They can help you figure out if you're on track to retire at your target age, make recommendations for investment allocations based on your risk tolerance, and give financial advice to keep -- or get -- you saving at the right pace.
Life insurance review
It can be difficult to choose between different types of life insurance and figure out how much coverage you need. A financial advisor can work with you to find the right life insurance plan for you and your family.
Investment review
Your advisor can take a one-time look at your investment portfolio. They'll take a look at where you're already investing and offer advice if you need help adjusting your investment strategy.
Tax planning
Another common type of financial planning is taxes. Your advisor can give tax advice on the right combination of write-offs, deductions, and strategies for minimizing what you pay come tax season.
College planning
A financial planner can help you navigate the world of education savings accounts, state-sponsored 529 plans, and other smart ways of saving for college.
Trust or estate planning
If you have a complicated estate planning situation, your financial planner could help you set up a trust or otherwise make sure you leave behind the legacy you want. This is usually done before or while creating a will.
Annuities
Some advisors offer annuities, or investment products that usually provide a fixed return. As an investor, you will purchase an annuity either with a lump sum or over time, and at some point in the future begin to receive a predetermined return on your investment.
Mutual funds
A mutual fund invests money for multiple individuals. Some financial advisors run their own funds, or act as salesmen for larger companies that offer mutual funds.
Home purchase
Financial advisors can help you create a plan for purchasing a home that matches your financial goals. Financial planning for home-buying looks at how much of a down payment you should make, how much the home should cost, and what steps you can take to save for it.
At minimum, your financial advisor should be a certified financial planner (CFP). This indicates that your planner is certified by the CFP Board, the governing body that ensures financial advisors are knowledgeable and ethical.
Check their specialization
Personal finance is a broad area, and not every financial advisor can be an expert in all things. Have a clear idea of your goals, such creating a tax-efficient financial plan or getting ongoing advice on your investment strategy. Then, choose a financial planner that specializes in that area.
Avoid commission-based advisors
Some financial advisors, like those at certain mutual funds or life insurance companies, get paid on commission for the products they sell. They may recommend products based on the commission they make, rather than what's best for you. Instead, look for a fee-only advisor.
You can save money on a financial adviser by managing as much of your own money as possible.
Go the DIY route
If you're looking for guidance on your investment strategy, you can save some money by paying a retainer fee for an investment advisor for financial advice, but making and managing your own investments. This takes more time than just letting your advisor oversee your portfolio, but lets you avoid AUM fees.
What are the benefits of hiring a financial advisor?
Everyone wants to know they're being smart with their money. Financial advisors can help you achieve this peace of mind by helping you plan for your financial goals, offering ongoing investment management and advice, and making sure you're prepared for life's biggest moments. Find a financial advisor or planner near you.
