How Much Do Financial Advisors Cost?
by Andrea Kornstein
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.
As you begin your search, you’ll discover that there are six basic ways you can be charged:
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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.
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.
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.”
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.
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