If you are looking for how much does a financial advisor cost, and you’ve been managing your finances on your own so far, you might at first have some sticker shock.
But just know that the cost of a financial advisor goes way beyond the monetary value. If you find a good advisor (which I can help you source), just KNOW that you will be able to sleep much better at night given that you are now paying someone else to shepherd your finances.
That being said, the cost of a financial advisor varies widely, with several fee structures to consider.
Average fees for financial advisors often depend on the advisor's pricing model, such as hourly rates, flat fees, or percentage-based fees. Some financial advisors charge a commission, while others are fee-only, meaning they don’t earn commissions from product sales.
A fee-only financial advisor typically offers more transparency, helping clients understand the cost breakdown. Wealth management advisors might have higher annual fees, especially when managing large portfolios. When comparing financial advisor fees, it's important to consider the value provided, especially in retirement planning and investment management.
Hidden costs can also impact the overall price, making it essential to review all financial planning service fees thoroughly. Understanding these costs is crucial for making informed decisions. This is where I can come in and help you review the fees an advisor is charging you.
Amy Parvaneh, founder and CEO of Select Advisors
Consultant to nearly 1,000 wealth management firms and teams
I've dedicated the majority of my career to the wealth management industry, and it's a sector I'm deeply passionate about. My journey began in investment banking at Citigroup, just a week before the tragic events of 9/11. It was a challenging time for our country and the financial sector. We spent that first year working late shifts despite the lack of deal flow. The hours were long, the pressure intense, and the work uninspiring. Most of my class faced layoffs that year.
Rather than changing course, I woke up at 4 a.m. daily to find another job, navigating a very tough job market. This persistence led me to equity research, where I found a "cushiony," low-stress job involving a lot of data entry and research. It wasn't for me, but I learned a lot. After business school, I knew I wanted to stay in finance, but roles in private equity, equity research, and corporate finance didn't excite me. That's when I discovered wealth management, an industry that wasn't heavily pursued. I joined Goldman Sachs, and the rest was history.
Read more of my bio here, and read below what I’ve gathered about the going rates of various financial advisors.
Understanding Your Financial Needs:
Before deciding if a financial advisor is worth the cost, take a step back and assess your current financial situation, goals, and needs. Determine if you need assistance with retirement planning, investment management, tax planning, estate planning, budgeting, or a combination of these areas. Understanding your specific financial needs will help you determine the value a financial advisor could bring to your situation.
Fee Structures:
Financial advisors can charge clients in different ways, such as:
One-time fee: This could be a flat fee for a specific service or financial plan.
Annual fee based on your assets: This fee is usually a percentage of the assets the advisor manages for you.
Commission-based: Advisors are compensated through commissions on financial products they sell to you.
Hourly/Subscription/Retainer fees: Advisors charge per hour, subscription, or retainer basis for their services.
Compensation Model:
It's important to consider whether the financial advisor is fee-only or fee-based. Fee-only advisors charge clients directly for their services and do not earn commissions from products they recommend. On the other hand, fee-based advisors may earn both fees from clients and commissions from products they sell. Understanding how your advisor is compensated can give you insight into potential conflicts of interest.
I’ve written more about various financial advisor compensation structures here.
Fiduciary Responsibility:
A fiduciary financial advisor is required to act solely in the client's best interest at all times. This means they must provide recommendations that are most advantageous to the client, even if it means lower compensation for themselves. Choosing a fiduciary advisor can provide you with greater peace of mind knowing that their recommendations are aligned with your best interests.
But don’t let someone calling him or herself a “fiduciary” be your main decision driver. You’ve probably seen story after story of supposed fiduciaries who scammed investors. Here’s an article as an example.
Robo-Advisors:
If cost is a significant factor, consider utilizing robo-advisors as an alternative to traditional financial advisors. Robo-advisors are automated platforms that provide investment management services at a lower cost than human advisors. They typically charge annual fees around 0.25% of assets under management or lower, making them a more cost-effective option for individuals with simple investment needs.
When to Hire a Financial Advisor:
Financial advisors can be worth the cost if you:
Need assistance with complex financial decisions, such as retirement planning, major life changes, or investment strategies.
Seek reassurance and guidance on financial matters.
Require specialized expertise in areas like tax planning or estate planning.
On the other hand, hiring a financial advisor may not be worth the cost if you:
Need basic budgeting assistance or are in the early stages of saving.
Are comfortable managing your investments on your own.
Only require help with simple financial tasks that can be easily managed independently.
Finding the Right Advisor:
If you decide to hire a financial advisor, take the time to:
Compare multiple advisors to understand their services, fee structures, and expertise.
Check for licensing and certifications to ensure they have the qualifications to provide financial advice.
Seek recommendations from friends, family, or professional organizations to find a trusted advisor who meets your specific needs.
The decision to hire a financial advisor should be based on your individual financial situation and needs. While financial advisors can provide valuable guidance and expertise, it's essential to evaluate their fees, compensation model, fiduciary status, and your own financial requirements before making a decision. By carefully assessing these factors, you can determine if the cost of a financial advisor is justified for your financial goals and circumstances.
Looking to hire a financial advisor but not sure where to start? Contact me to help you navigate this very challenging industry!
RIA vs Wirehouse, which is better for my wealth management needs? How do I choose a financial advisor? Which is better, Merrill Lynch vs boutique? What is an RIA? Is it better to choose a boutique financial advisor who is independent vs large bank? All of these are answered in this blog!