Financial advisors provide advice on all aspects of your financial situation, ranging from helping you set financial goals and determine what kinds of accounts to save in, to investing funds for you and advising you on how to build a diversified portfolio of assets.
There are also several types of common financial advisor designations, also sometimes broadly referred to as “wealth managers”:
- Certified Financial Planners (CFPs) that help with a broad financial plan
- Chartered Financial Consultants (ChFCs) that offer specialized advice, such as how to make a financial plan for your small business or after a divorce
- Chartered Investment Counselors (CICs) that help manage investments
- Registered Investment Advisors (RIAs) that help you invest your funds
Because there are different kinds of advisors with different types of credentials, there’s no one price you’ll pay for financial advice. The total average cost of working with a financial advisor will depend on what type of advice you’re seeking, as well as the fee structure the advisor uses for the services you receive.
If you’re wondering how much do financial advisors cost, the answer can vary widely. Some financial advisors charge based on assets under management (AUM), while others charge a flat rate or an hourly fee for their services. Financial planner cost can be influenced by many factors, including the advisor’s experience, credentials, and location. Therefore, it’s crucial to compare the current financial advisor costs and choose an advisor that can provide you with personalized financial advice that fits your specific needs.
Typical Fee Structures for Financial Advisors
There are two different payment structures for financial advisors:
Fee-only financial advisors
These firms make money when you pay them and they are compensated solely by you for managing your money and providing financial advice.
Fee-based advisors
They make money not just from management fees from clients but from other sources as well. Usually, those other sources are commissions paid by third parties. These commission funds might come from selling you a particular type of investment, getting you to buy a specific kind of insurance, or getting you to open an account with a particular financial institution.
While there are some valid concern that fee-based advisors may sell products that provide expense commissions to pad their compensation, fee-based advisors can be just as ethical as fee-only advisors, especially if they have financial credentials that require them to act as a fiduciary. A fiduciary means they must, by law, put your interests above their own.
Average Percentage of AUM (Assets Under Management) Fees
Investment advisors often charge a fee based on the percentage of assets under management. The percentage charged usually depends on the value of the assets the advisor is managing. In 2019, these were the average fees based on the amount of invested funds:
| Investment Amount | Average % AUM Advisor Fees |
Total Fees = (Amount x Rate) |
| $50,000 | 1.18% | $590 |
| $100,000 | 1.12% | $1,120 |
| $150,000 | 1.09% | $1,635 |
| $250,000 | 1.07% | $2,675 |
| $500,000 | 1.05% | $5,250 |
| $1,000,000 | 1.02% | $10,200 |
| $1,500,000 | .94% | $14,100 |
| $2,000,000 | .91% | $18,200 |
| $2,500,000 | .88% | $22,000 |
| $5,000,000 | .84% | $42,000 |
| $7,500,000 | .77% | $57,750 |
| $10,000,000 | .69% | $69,000 |
| $20,000,000 | .65% | $130,000 |
| $30,000,000 | .59% | $177,000 |
Average Flat Rate Fees
You can also be charged a flat rate fee for investment assistance, with the average rate also dependent upon the amount invested. These are the average fixed fees charged by financial planners based on assets under management.
| Investment Amount | Average Advisor Flat Fees |
| $1 to $499,999 | $7,500 |
| $500,000 to $999,999 | $11,000 |
| $1,000,000 to $1,999,999 | $12,500 |
| $2,000,000 to $7,499,999 | $37,500 |
| Over $7,500,000 | $55,000 |
Average Hourly Fees
Some financial advisors do not charge based on assets under management but instead assess an hourly fee for the services they provide. The average hourly fee charged is typically between $120 per hour and $300 per hour, highly dependent on the metro area, educational background, and level of experience the advisor has.
The per-hour fee structure is often used by financial advisors offering advice on estate planning; debt management; tax strategies; and Social Security claiming strategies. Many financial planners will do a portfolio review and provide investment advice for an hourly fee as well.
Average Annual Retainer
Finally, there are investment advisors that charge a set annual fee and provide financial assistance as needed throughout the year. The retainer under these circumstances is usually determined based on the complexity of your financial situation and Advisory HQ indicates the average can range from $6,000 to $10,000 depending on your geographic location and your needs.
What’s considered expensive or affordable? How can I make sure I get a good advisor?
As you can see, there is no one answer to what an average financial advisory fee is because there are many different services financial advisors provide and many different methods of charging. In fact, many advisory firms offer a hybrid approach to clients seeking advice. For example, the firm might enable clients to pay for investment assistance based on a percentage of assets under management while paying hourly for other services such as Social Security planning.
Others offer a package deal for specific types of guidance. In fact, Advisory HQ indicates you could expect to pay an average of $800 to $1,200 for portfolio guidance; $1,500 to $2,500 for retirement planning help; $2,000 to $4,500 for assistance with the creation of a comprehensive financial plan; or $1,100 to $1,800 for tax planning assistance.
Personal factors to consider:
- The credentials of your advisor: Specialty experience, educational background, relevant experience with clients who are similar to you, etc.
- The level of support you need: Regular check-ins, occasional consultative planning, etc.
- The complexity of your financial situation: Multi-generational planning, business and personal finances, upcoming life events, windfalls, international/cross-state considerations, etc.
Generally, as with most professional services, you will pay more to get more: More expensive firms will be better equipped to handle complex considerations, specialty needs, and can provide a higher level of service. These firms are typically on several “best of” lists, are more in demand, and have more staff with advanced educational degrees.
Doing your research into the services that are most relevant to you and the background of the firm you are choosing to help you is important so that you can make certain you get the best value for your money.
Sources:
https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/
https://www.kitces.com/blog/independent-financial-advisor-fees-comparison-typical-aum-wealth-management-fee/