You’re doing pretty well for yourself (virtual high five!). And you want to ensure you’re managing your money properly. So you’re strongly considering turning to a finance professional for some guidance. However, there are two main questions dogging you: how much will a financial advisor cost? And will it be worth it?   

There’s no question that working with a good advisor can be highly advantageous. As Chartered Financial Analyst (CFA) Wake Smith shares, “Financial advice can provide a lot of value to consumers. The behaviors, strategies, and products that lead to sustained financial success can be complex. So a knowledgeable, empathetic [professional] can save someone a lot of time and money as they try to make the most of their resources.”

Nevertheless, he also wisely cautions that “the value of an advisor isn’t infinite. There is a limit [as] to how much you should be willing to pay for advice. And consumers who know their [different options]…can make much better [informed decisions].” This is precisely why you need to educate yourself on financial advisor cost structures.

Financial planner fee ranges

As you begin your search, you’ll discover that there are six basic ways you can be charged:

• Hourly Rate – Some financial advisors bill you per hour, often for consulting. Of course, rates can greatly vary from advisor to advisor; it’s common to find fees ranging from anywhere from $100 to $400/hr.
• Assets Under Management (AUM) – AUM refers to the amount of money a financial advisor manages for a client. Advisors often earn a percentage of those assets, usually 0.50-2% each year. This means that if you have $100,000 to manage, your annual financial advisor cost would be $1,000 (assuming you’re charged 1%).  
• Fixed or Flat Fee: As the name implies, a fixed fee is a one-time, set payment made for a particular service (for example, the creation of a retirement plan). The cost depends greatly on the subject matter and complexity, but could be between $1,000-$5,000. 
• Commission: Some advisors are paid via commission. They earn money from the investment products they recommend. While the cost varies, it’s generally between 3-6%. We should note that some planners are paid their commission on the front-end (meaning when you first invest) and some are paid on the back-end when you sell.
• Performance-Based Fee: Simply put, this is a fee based upon the performance of your investments. If they either meet or surpass an established benchmark, you’ll pay your advisor. This charge is usually in addition to your management fees and is often a percentage of your profits.
• Retainer Fee: Some people who work with advisors opt to keep them on retainer. This means that they pay them either a monthly or annual financial planner fee to develop a comprehensive investment strategy and monitor the progress. It’s common for this to end up costing $2,000-$7,500 for the year.

Fee-only vs fee-based

Alright, so now you know the different ways in which financial advisor costs can break down. But let’s zoom out a bit. It’s equally important to understand that there are three types of advisors who may charge any combination of the above: fee-only, fee-based and commission only.

• Fee-only advisors never earn any money based upon commission. Instead, they bill only for their services. 
• Fee-based advisors also charge a fee for their financial services. However, in addition, they may make a commission from their clients’ investments as well.
• Commission-only advisors, as you probably suspect, earn their income solely from the commission they receive whenever they buy or sell investments on your behalf. 

You should realize that out of the three categories, fee-only advisors are the least likely to have any conflict of interest. The other two have incentive to push you towards financial tools and products through which they can recoup a commission.

Are financial advisors truly worth the cost?

You may have a handle on the price structure but you’re still wary of shelling out the cash. After all, wouldn’t it be better to save yourself the expense and manage your money yourself? Well, according to a study conducted by Vanguard, individuals working with financial advisors improved their investment results by up to 3 percentage points annually. 

Another benefit to hiring a financial planner? They can deliver advice on a whole host of topics — from tax issues and employee stock options to investment and retirement planning. Even better, they can remain wholly objective about your finances and help quell any anxieties about investment risks or dips in the market. 

If you are leaning towards hiring an advisor, consider this final piece of advice from Wake: “Keep in mind that the most expensive advisor isn’t always the best. And the cheapest advisor doesn’t guarantee good value.” Ultimately, “the most effective way to learn if a particular advisor is worth their cost is to work with them on a limited or fully refundable engagement before committing to a longer term working relationship.”

My Financial Counsel can help

Convinced you can afford a financial planner but unsure of how to begin your search? You can always look to My Financial Counsel for assistance. We can pair you with a fiduciary advisor who is guaranteed to act in your best interest. To get started, take our free, confidential survey here.