Average Fee For A Financial Advisor


A fat pile of receipts -- maybe from a financial advisor. If so, what are average financial advisor fees? Photo by Ben Osteen.

A fat pile of receipts — maybe from a financial advisor. If so, what are average financial advisor fees? Photo by Ben Osteen.

So, you’re thinking about hiring a financial advisor, but you don’t know how much you can expect to pay. You want to know: is it worth it? Can I afford it? What’s the average fee for a financial advisor?

Luckily, this is a reader question that I’ve answered before (and will answer again in this post), like in my posts:

Indeed, the “typical financial advisor fees” post is going to be a near duplicate of this one. Oh, well, like I mentioned here, my dream is to so exhaustively answer this query that I’ll never have to write about it again.

A man can dream, right?

Understanding the types of financial advisors

Before you can understand the average fee for a financial advisor, you need to narrow it down — you need to understand the different ways that different financial advisors charge. I’ve covered this more in-depth in my post on types of financial advisor, but I’ll summarize it here.

There are three major ways that a financial advisor makes money: via commission, via an hourly rate, or via a percentage of assets. A commission based financial advisor will make money each time that they sell you something, and might not charge a fee otherwise. This is how a lot of brokers make their money.

A fee-only advisor, on the other hand, only makes money by charging an hourly rate, similar to the way you might get charged by a lawyer or an account.

Then there’s percentage based advisors, who are more like active money managers, they will keep watch over your portfolio and manage it for you, but it’s going to cost you a percentage of your assets each year.

Okay, now that you know the three major types of financial advisor (commission, fee-only, and percentage-based), it’s time to cover the average fee for a financial advisor.

Average fee for a financial advisor

In general, I don’t recommend listening to a commission-based financial advisor. After all, they get paid when they sell you something, not when they give you good financial advice.

So, really, when you’re thinking about hiring a financial advisor, there are only two types you need to consider: fee-only and percentage based advisors.

In general, a fee-only advisor is going to cost you around 150 to 300 dollars an hour — if they charge by the hour. Some charge by the project, and those rates can vary a lot. But an average fee for a fee-only financial advisor is 150 to 300 dollars.

When it comes to percentage-based advisors, the industry standard is 1% of assets per year. However, as I covered in my post, “The True Cost of a Financial Advisor,” when you take into account missing returns on that 1%, you could end missing out on more than a quarter of a million dollars. Nothing to scoff  at!

So, if you’re going to go the route of a percentage-based advisor, I recommend shopping around. Check out the bottom of this post, too, where I give a few examples of cheaper-than-1% percentage-based advisors.

 

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