We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.

A financial advisor sitting at a desk on top of a money scale
Kiersten Essenpreis for Money

One constant theme of the financial world in recent years has been declining fees: Lower expenses for mutual funds and ETFs, zero-commission trading.

But when it comes to fees for financial advisors? Not so much.

That’s the conclusion of the 2020 Kitces Research Financial Planning Process Study, from popular planner, speaker and author Michael Kitces. The report surveyed more than 800 planners about how they do business, and found no evidence of the so-called “race to the bottom”.

“We are not seeing the fee compression that has been so commonly talked about,” says Derek Tharp, lead researcher for Kitces.com who helped compile the report. “People feel like it is coming, but it hasn’t really happened yet.”

For those advisors charging a percentage of assets under management (known as AUM in industry parlance), the report found, the typical annual 1% has remained fairly standard. And other fees actually went up from 2018 to 2020, such as standalone plans (by 12.4%), retainers (by 25%) and hourly charges (by 25%).

In terms of how financial advisors make their living, there is the usual mixed grill: Some charge by AUM, some charge for drafting a comprehensive plan, some bill separately for ongoing portfolio management, some sell commission-based products, and some do a combination of some or all of those.

For Joe or Jane Average who is looking for someone to manage their money, all these competing compensation models can be a tad confusing. It can also, even according to some planners, be quite expensive.

“There is a lot of overcharging going on with fees, and that has been a contention of mine for a long time,” says Rick Ferri, an advisor with Ferri Investment Solutions in Georgetown, Texas. “This is the last bastion of gluttony in the financial services industry.”

Take this example from Ferri: If someone with $2 million in assets and one or two straightforward accounts is being charged 1%, not just in the initial year but every year after that, that’s $20,000 annually going out the door. Is the advice involved really worth that sum of money?

The answer to that question really comes down to the services being provided. If it is an ongoing retainer-type relationship — with frequent interaction, multiple accounts, portfolio tweaking depending on changing circumstances and goals, long-term tax planning, and so on — then “it is easy to add 1% of value,” says Tharp.

“Advisors get a bad rap for the fees we charge,” says Jacqueline Schadeck, a planner in Atlanta. “We're heavily scrutinized for how we charge our clients and how much we should be compensated. As long as advisors are transparent about their fees and clients are willing to pay for that service, then it sounds like a win-win.”

On the other hand, if the relationship is more of a set-it-and-forget-it nature, akin to a robo-advisor or target-date fund, then an annual 1% fee can be a steep price to pay. As a point of comparison, ongoing portfolio-management fees from outfits like Vanguard, Betterment or Wealthfront tend to be in the 0.25 to 0.3% range, notes Ferri.

For advisors themselves, AUM certainly seems to be the more attractive proposition: Median hourly compensation for AUM planners implies a range of $350 to $800, while those charging on an hourly basis receive a more modest range of $100 to $300, according to the Kitces report. That helps explain why the majority of planners operate under some kind of AUM compensation model.

What Financial Advisors Really Charge

As you shop for the right advisor, knowing the typical amounts involved is important information to have. According to the Kitces report, for instance, the median amount charged for a comprehensive financial plan is $2,500. Median hourly rates, meanwhile, are $250. Ferri, for his part, charges $925 for a “portfolio review” which clients then implement themselves.

When it comes to AUM models, the current median for a $1-million account is the expected 1%, or $10,000 annually. The larger you get, those percentages tend to drift down, presumably because it gets harder to justify the sums involved: $5-million accounts carry a median fee of 0.78%.

Ferri suggests that such fees should be “capped” at some point. If there is little difference between the strategies and asset allocation of a $3-million versus a $4-million account, then the only distinction is the annual advisory fee being charged — and that’s not great for the consumer.

The key point for clients in all this is awareness. It’s impossible to make a blanket statement for the entire industry: Some clients may feel that 1% annually is worth all the services they receive, and some may not. But they should absolutely be aware of those fees, which may be tucked discreetly in the back of a monthly or quarterly report.

“More transparency is always a good thing from a consumer perspective,” advises Tharp. “When you see that fee, ask yourself, ‘Am I getting enough service to justify that?’ Then make your personal decision from there.”

More from Money:

Investors Are Betting Their Retirements on Bitcoin. And, Yes, That Is Very Risky

The New Investor's Survival Guide: How to Make Money (and Stay Sane!) in Today's Wild Markets

How to Choose a Financial Advisor