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Financial advisors offer the knowledge and expertise necessary to analyze clients’ financial health, address their specific needs and identify opportunities to increase their wealth through prudent money-managing decisions. They can guide you in navigating complex financial plans, understanding investment options, establishing realistic goals and making informed decisions about savings, investments, insurance, college planning and retirement.
The cost of enlisting a financial advisor’s help varies based on the extent of your financial needs, the complexity of your situation and the advisor’s pricing model.
Keep reading for a comprehensive look at exactly what a financial advisor is and how much a financial advisor costs, including fees, commissions and whether the investment is worth the expense for your financial situation.
How much do financial advisors cost?
When considering how to hire financial advisors, keep in mind that fees vary. The following are some general guidelines that can help you better estimate the costs you’ll face in hiring a financial advisor.
While it may be difficult to find flat-fee financial planners, a comprehensive one-time financial plan — usually the simplest financial advice — will likely cost anywhere from $1,000 to $3,000. This type of plan often includes a detailed financial health assessment that considers your assets, liabilities, income, expenditures and long-term financial goals. It may also include suggestions for investments, potential strategies for purchasing a home or possible routes to provide for children's education or your retirement.
Advisors typically charge annual fees for ongoing advice related to managing an investment portfolio, coaching financial behaviors, analyzing insurance needs and periodically reviewing and updating financial plans.
You might also consider an hourly-rate financial advisor — rates average between $120 and $300 — depending on the intricacy of your financial situation and the size of your assets. Individuals with more assets or more complex situations usually pay more due to greater complexity, which requires more time for a full assessment and more specialized knowledge of taxes or investment opportunities relevant to someone with greater wealth. The good news: These fees don't change with your assets. You may have to spend more time managing your own accounts once they're set up, though.
Some financial advisors prefer working with a fee structure wherein they’ll charge a percentage of your total portfolio’s assets under management (AUM). This percentage typically ranges from 0.65% to 1% annually, and aligns the advisor’s incentive with your success. The more your portfolio grows, the more the advisor earns. There’s usually a minimum investment required for this type of service, often with a minimum of at least $250,000.
Types of financial advisor fees
Financial advisors generally charge fees in one of three ways: commission-based, fee-only or asset-based. Understanding these financial advisor fees and costs can help you make a more informed decision about the kind of service you may need and that fits within your budget.
Commission-based financial advisors earn money when you buy certain recommended financial products. These can include mutual funds, insurance policies or annuities. While this can lower your out-of-pocket costs, it can also create a conflict of interest since the advisor could be motivated to recommend products that earn the highest commission while potentially not being the best fit for your portfolio.
Fee-based financial advisors charge a flat rate for their services, cutting out the potential conflict of interest that can happen with commission-based fees. Some fee-only advisors charge a flat hourly rate, while others’ charges are based on a percentage of the AUM, which is usually between 1% and 2%.
Advisors operating on an asset-based model fuse the payment strategies found in both commission-based and fee-only models. They levy a fee proportionate to the total of your AUM and, additionally, have the potential to generate income through commissions on select transactions or products.
Factors that affect the cost of a financial advisor
The cost of hiring a financial advisor is not a one-size-fits-all proposition or a simple standard figure. Instead, it varies based on numerous factors.
The financial advisor’s experience and expertise
Typically, a financial advisor with a longer track record or specialized qualifications may command higher fees due to their enhanced ability to navigate complex financial matters. Their extensive knowledge, honed skills and potentially large network within the financial industry enable them to provide high-quality advice and services, often resulting in superior financial results for their clients. This added value and the experience they bring are often reflected in the premium cost of their services.
The complexity of your financial situation and needs
As the complexity of your financial situation increases, it requires a greater commitment of time and specialized knowledge from a financial advisor, which subsequently drives up their fees. If you have diverse sources of income, substantial investments to manage or a convoluted tax scenario, this financial picture requires more detailed analysis and strategic planning, which in turn costs more.
Your geographic location
The locale where a financial advisor operates can also significantly influence the costs. Locations with a higher cost of living or stronger competition for advisors often correlate with higher advisory fees.
For instance, in densely populated urban areas, where the cost of living and operational business expenses are generally elevated, financial advisors might charge more for their services than those in smaller towns or rural areas. Similarly, an area with a high demand for financial advisors (e.g., where many people in higher income brackets reside) can drive up prices due to increased competition for obtaining financial advising services.
Investment product fees
Your advisor’s fees usually don’t cover product and transaction fees. These additional costs are generally incorporated into the financial products in which you invest — like mutual funds or other types of securities — creating an added layer of expense to your comprehensive financial strategy.
For instance, if you choose to invest in a specific fund, the fund itself may have internal costs and administrative and management fees. These fees are referred to as an expense ratio and can range from 0.5% to 1.5%. Similarly, transactions like buying and selling stocks might also incur separate fees or broker commissions. These additional expenses can affect the total cost of retaining a financial advisor.
Additional service charges
Extra services, like in-depth financial planning or specialized consulting, typically come with their own set of charges. For example, if you’re seeking specialized advice for estate planning, retirement planning or business consulting, an advisor might charge an additional fee for the time, knowledge and expertise required to navigate these specialized fields.
When hiring a financial advisor, it’s wise to have a detailed discussion about potential extra costs for any additional services you might require beyond standard advisory services in order to paint a more accurate picture of how much it could cost given your circumstances.
How to find an affordable and qualified financial advisor
Selecting a financial advisor can be a significant decision with long-lasting implications for your financial future. When looking for guidance and management about your finances, it’s essential to find a qualified professional who is capable, trustworthy and fits within your budget.
Affordability doesn’t have to mean sacrificing performance or reliability, though. Here are some effective strategies for finding a qualified, affordable financial advisor to help you realize your goals and build a secure financial future.
Research and compare different financial advisors
Deciding how to choose a financial advisor shouldn’t be a hasty process. As with any other industry, it’s advisable to explore, compare and analyze various advisors before settling on one. Assess their qualifications, like the certifications or degrees they hold, or their specialized areas of expertise. Survey the services they offer so you can make a financial advisor fee comparison and ensure they match what you’re looking for. Some banks provide a financial advisor fee calculator online to help determine what to expect.
Examine advisors' fee structures for affordability, transparency and fairness. Online reviews and testimonials from previous clients can provide valuable insight into a financial advisor’s professionalism, reliability and effectiveness. By thoroughly researching and cross-checking this information, you’re more likely to find a suitable and competent financial advisor.
Get recommendations and referrals
Leveraging your personal network can be an advantageous way of finding a trusted financial advisor. Friends, family or colleagues who have had a positive experience with a financial advisor often provide reliable recommendations.
Their firsthand experiences can offer unique insights into the advisor’s professional capabilities, work ethic and personal traits. A strong, positive referral from someone you trust can significantly ease the decision-making process and give you greater confidence in your choice of a financial advisor.
Understand fee structures in the financial services industry
Fully understanding the various fees and how much financial advisors charge is essential to making an informed selection. Advisors may levy commission-based fees, charge flat rates or use an asset-based approach depending on your situation and their policies. Knowing what these fee structures mean and how they apply to your situation will help as you evaluate potential advisors.
Your understanding of advisor fee structures can guide you toward an advisor who offers the services you need and who aligns with your budget demands and financial goals. This allows you to weigh the cost against the services and benefits provided, aiding you in selecting a financial advisor that offers you the best possible value.
Negotiate fees and services where possible
Financial advisors’ fee structures aren’t always set in stone. Although not all advisors may be amenable to negotiation, directly discussing your financial needs and limitations can be worthwhile. By having an honest conversation about your budget and circumstances, you can potentially find an advisor who is open to adjusting their fee structure.
For example, some may offer to work on a retainer fee or introduce a performance-based component to their prices, wherein they’re compensated based on the performance of your investments. Being proactive and open about your budget limitations and long-term goals can help you find an advisor who fits within your financial boundaries and still meets your needs.
Are financial advisors worth it?
While hiring a financial advisor entails an upfront cost, the long-term advantages of professional financial guidance often outweigh the initial expenses. Financial advisors use their expertise to create a personalized roadmap that helps you move toward your goals, saving you valuable time and reducing stress by guiding you through financial complexities.
They can also save you money in the long run by identifying lucrative investment opportunities or tax-saving strategies. Moreover, having a financial advisor brings an objective perspective to your finances, helping you make decisions free from personal bias. In most circumstances, the cost of a financial advisor can be viewed as an investment toward efficient financial management and long-term financial stability.
How much does a Fidelity financial advisor cost?
Fidelity offers a variety of services through its financial advisors, and the costs associated with these services can vary significantly based on your individual needs. If you choose a managed account with Fidelity, the annual fee will typically be calculated as a percentage of your AUM and can range from 0.35% to 1.5%. This fee covers the management, oversight and expert advice provided by Fidelity’s team. Additionally, there might be ancillary costs depending upon the specific services you opt for, like individual consultations, estate planning or complex tax services, which are not covered under the standard management fee.
Are financial advisor fees tax deductible?
Due to changes in the U.S. tax code that took effect in 2018, most taxpayers can no longer claim financial advisors’ fees as tax deductions. This revision signifies a shift from years past, when such costs could be written off as miscellaneous itemized deductions.
However, tax laws can be multifaceted. Individual situations may vary and result in exceptions. It’s beneficial to consult with a tax advisor who can evaluate your specific circumstances, offer expert advice and ensure your taxes are filed appropriately with any available tax savings.
Summary of Money’s how much does a financial advisor cost
The cost of a financial advisor can vary greatly based on numerous factors, including their experience, areas of expertise, fee structures and location. Researching, comparing and understanding those factors can help you find an affordable advisor that fits your needs. While the cost of hiring a financial advisor may seem high, the potential benefits often justify the expense, even though the introduction of new tax laws means financial advisor fees are generally no longer tax-deductible.
Financial advisors can offer a wealth of expertise and provide you with peace of mind by managing your finances. While their services come at a cost, the returns — in the form of well-managed finances, a strong financial plan and the potential growth of your personal wealth — can far outweigh the associated expenses. By doing your homework and understanding precisely what you need and what you’re paying for, you can find a financial advisor who’s well worth the money.