Financial advisers and financial planners come in different shapes and sizes, meaning they also come with different pricing and costs. Financial advisers and wealth managers are no longer reserved for the extremely wealthy and are readily available to anyone who needs expert advice on managing or planning their assets and investments.
Depending on your individual needs, advisers can charge a flat rate — usually between $1,500 and $5,000 — for a retainer, a percentage of your assets — if they are actively managing an investment portfolio — or an hourly fee for case-by-case clients. In this guide, Benzinga discusses what you need to know about the cost of financial advisers.
How Financial Advisers Charge for Their Services
The U.S. Securities and Exchange Commission (SEC) defines six services financial advisers might have in their compensation structure:
- A percentage of assets under management
- Fixed fees
- Performance-based fees
- Hourly charges
- Commission-based fees
- Subscription fees
The first four types are the most common. Percentage of assets under management is by far the most common fee structure, being offered in over 95% of all registered financial adviser firms in the US. If you have a strong preference for one type of fee structure, most adviser firms will offer one or more types of compensation. In terms of actual costs, what you ultimately pay will likely come down to what services you are looking for and how many assets you need to have managed. You should expect to pay the following for each type of payment structure:
Fee Structure Cost
|Percentage of AUM for Robo-Advisers
|0.25% to 0.5%
|1% to 2%
|$1,000 to $3,000
|Variable Hourly Rate
|$100 to $500
Percentage of Assets Under Management: 1 to 2%
When you are looking for portfolio management or investment advice, the most common way to pay for services is as a percentage of your assets under management. The more you have to manage, the more you have to pay. It is unlikely that you will ever have to pay a fixed fee or retainer just for portfolio or investment management unless you have an account balance below the adviser’s minimum for managing accounts.
Fixed Fees Cost: $2,000 to $7,500 per year or $100 to $300 per hour
Fixed fees are usually offered for financial planning services rather than portfolio management. If you wanted to create a financial plan to get ready for retirement or you had a financial situation and needed assistance, a fixed fee would be the most likely way you would be charged.
Fixed fees can generally be charged on an hourly or annual retainer basis. If you have a unique, one-time financial situation and need consultation, you may be charged an hourly rate with your financial adviser. If you are looking to create a long-term plan with a CFP® or other financial planner, then you will likely be charged an annual retainer.
Performance-Based Fees Cost: A Percentage of Your Investment Profits
The third most common form of financial adviser fees is performance-based. You pay this fee if your adviser does a superb job and earns you profits on your investments. The exact cost of a performance-based fee will need to be decided between you and your adviser, but they are generally a percentage of the profits.
It is important to note that in the vast majority of cases, performance-based fees will be tacked onto a percentage you already pay based on your assets under management.
How Much Do Robo-Advisers Cost?
Robo-advisers have grown in popularity in just the past five years. Three of the top 10 largest financial advisers are now robo-advisers. The appeal of robo-advisers likely stems from their reduced cost relative to human advisers. Robo-adviser fees are generally less than 0.5% of your assets under management, which is upwards of 2 to 3x less than you would get with a human adviser.
A robo-adviser may not be for everyone. If your goal is to have a place to invest your money every so often and entrust a robo-adviser algorithm to let it grow passively over time, then a robo-adviser may be for you. If you are looking for something more hands-on, such a financial planner to actually walk you through a financial plan for your future, then a human adviser is your best bet.
Fee Structure Cost
|Type of Adviser
|Human Adviser ($100,000)
How to Determine How Much Your Financial Adviser Costs
The best way to see how your adviser firm charges clients is to look at their Form ADV on the SEC.gov website. Every adviser firm in the country has its information listed for public consumption on the SEC website. Specifically in section 5, question E of the Form ADV, you will be able to see how your potential advisory firm charges clients.
To see how much your adviser charges, you will need to dig into its Part 2 Brochure, which can also be found on the SEC website. The Part 2 Brochure can be dense The most effective way of ascertaining your financial adviser’s cost is by asking them. Before committing any finances to an adviser, you should have them run through their pricing in explicit detail. Understand all potential costs before making your decision to invest time and money with them.
Fee-Only Adviser vs. Fee-Based Adviser vs. Commission-Based Adviser
You may come across these three terms when searching for a financial adviser. Understanding each will be important in determining how your prospective adviser collects fees. The most ideal type of adviser will probably be a fee-only adviser. These advisers are the ones least likely to have a conflict of interest. They do not collect money based on things they may sell to you. They only collect fees from the amount of assets you have under management or from fixed fees. Fee-only advisers are always fiduciaries, which means they have your best interest in mind.
Fee-based advisers are similar to fee-only advisers, except they can also earn money from commissions; however, they are always fiduciaries. Commission-based advisers can only earn money from commissions they make by selling you financial products, but they do not necessarily have to be a fiduciary. Benzinga advises customers to be wary of commission-based advisers and to make sure they are registered fiduciaries. If they are not a fiduciary, they may sell you products against your best interest only because they will earn a commission from the sale.
Adviser Costs Demystified
The cost of investment advisers can vary depending on their fee structure, which includes options such as a percentage of assets under management, fixed fees, performance-based fees, hourly charges, commission-based fees or subscription fees. Most commonly, advisers charge a percentage of assets under management, typically ranging from 0.25% to 2%. Robo-advisers offer lower-cost options, usually charging less than 0.5% of assets under management. It is important to review a financial adviser's Form ADV and Part 2 Brochure to understand their fees. Fee-only advisers are recommended for their fiduciary duty, while fee-based advisers can earn commissions and commission-based advisers may have conflicts of interest.
Frequently Asked Questions
What is the normal fee for a financial adviser?
Financial advisers charge a fee based on factors like experience, expertise, location and services provided. The fee is usually a percentage of managed assets, ranging from 0.5% to 2% annually. Some advisers may have an hourly rate or flat fee for specific services. Researching and comparing fees is important to ensure good value.
Are financial advisers worth paying?
The value of a financial adviser depends on individual circumstances and needs. They can provide guidance, create personalized plans, help with investments and tax planning and navigate complex situations. However, it is important to consider fees and services to ensure they align with specific financial goals. The value of a financial adviser varies from person to person, and it is important to assess the benefits and costs.
Alternatives to a financial adviser?
There are several alternatives to using a financial adviser. These include educating yourself about personal finance, using robo-advisers, seeking advice from friends or family members or consulting with a CPA or attorney. The best alternative depends on individual circumstances and goals.