How much is a financial advisor? Costs, rates, and fees


There are two types of people in the world: those who know everything in this post already, and those who will know everything in this post after they read it.

There are two types of people in the world: those who know everything in this post already, and those who will know everything in this post after they read it.

There are two types of people in this world. There are those who know the answer to the question, “How much is a financial advisor?” and then there are those who don’t.

Presumably you, gentle reader, are in the first of those groups. This sort of pains me, because this isn’t the first time that I’ve answered that question. In fact, I’ve answered this question a lot. I have a whole page dedicated to all the posts where I’ve answered this question.

But oh well, right? I’ll answer it again.

Currently you’re one type of person. Let’s transform you into the other.

How much is a financial advisor?

Before I can answer the question, “How much is a financial advisor?” I first have to tell you about the different types of financial advisors. Luckily, you don’t need to understand all of the subtle differences, like I’ve covered before, but you do need to understand that different financial advisors have different fee structures.

They will charge you in different ways, and the ways are not that comparable.

Types of advisors

There are three main types of financial advisor. They are:

  • Fee-based and fee-only financial advisors: This type of advisor charges an hourly or per project rate. This is the same way that you might be charged by a lawyer or an account, if you had one, or if you hired a consultant for your business. As I’ve mentioned in the past, these are a good choice if you want to be the main person responsible for your finances.
  • Commission-based advisors: commission-based financial advisors make money whenever they sell you something. For instance, this is the manner in which my broker makes money: she gets a cut each time that I purchase some stock. Similarly, if you need life insurance, you don’t need to pay someone a fee: some guy will come and sell it to you, because he gets a substantial piece of change off each sale. Like I put it last time, I’m wary of these guys because they’re more interested in selling than helping.
  • Percentage-based financial advisors: Percentage-based financial advisors will watch over your money and handle it for you, but they will charge an annual fee for doing so. My opinion was and remains that the strength of these financial advisors is that their incentives align with yours, such that when you make money they make more money.

How much is a financial advisor?

Okay, now that you understand the three types, here’s how much you can expect to pay for each:

  • A fee-based or fee-only financial advisor will generally charge an hourly rate of 150 to 300 dollars an hour (like I said in my post on financial advisor rates.) Alternatively, they might charge per financial plan — Vanguard, for instance, will give you a financial plan for 250 dollars if you have enough money invested with them.
  • Commission-based advisors should not charge you anything. They’re like salesman. They get a cut of whatever you buy.
  • The industry standard is 1% of assets each year for percentage-based financial advisors. This can add up to a lot of money. In my post on the true cost of a financial advisor, I found that it could mean more than a quarter of a million dollars. Luckily, there are cheaper options, see the bottom of this post.

Alright! Now you’re one of the people that can answer the question, “How much is a financial advisor?” Do you feel like a new person?

If you enjoyed this, check out my post on questions to ask a financial advisor.

How do financial advisors get paid?


A fat pile of receipts -- maybe from a financial advisor. If so, how do they get paid? Photo by Ben Osteen.

A fat pile of receipts — maybe from a financial advisor. If so, how do they get paid? Photo by Ben Osteen.

Whether you already have a financial advisor, or are just looking for one, the way that they get paid can seem like a mystery. Trust me, I know. I can’t tell you the number of times I’ve gotten the question, “How do financial advisors get paid?”

Fear not, gentle reader! The answer doesn’t have to be complicated. Most things in the life of an investor are not that complicated and, when they are too complicated too understand, this is a red flag. How was Bernie Madoff making his returns of 12% per year,¬† year after year? If his investors had understood how, they might not have lost their money.

Indeed, if financial gurus had actually understood the mortgage-backed securities that they were buying, they would have understood that they were built on untenable foundations, and we might not have experienced the 2008 financial crisis.

How do financial advisors get paid? Let’s go over it together.

How do financial advisors get paid? Types of financial advisors

The first thing you need to understand about financial advisors is that there are a huge number of different ones. I’ve covered this before in my post on the types of financial advisors, where I covered 14 different acronyms, and I could have covered a lot more.

Luckily, if you just want to understand the answer to the question, “How do financial advisors get paid?” you only need to understand three of those types:

  • Fee-based and fee-only financial advisors: Fee-based and fee-only financial advisors generally charge an hourly fee, just like a lawyer, or a per-project fee. Some might even have a fixed rate for each financial plan that they produce. I’ve mentioned this before, but I like fee-based and fee-only financial advisors for people who are willing to be active in their finances. The difference between fee-based and fee-only advisors is that fee-only advisors only make money off their rates, while fee-based advisors also earn a commission, which brings me to my next type of financial advisor.
  • Commission-based financial advisors: Commission-based financial advisors earn a cut of everything that they convince you to buy. Brokers, for instance, often charge this way, as do people who sell life insurance. I don’t really like this type of financial advisor, because they are mostly interested in sales, and not so much in, you know, actually helping you.
  • Percentage-based financial advisors: Percentage-based financial advisors will watch over your assets, but they take a cut of them each year. In this sense, they’re a lot like money managers.

So that’s how each type of financial advisor gets paid — but how much should they be paid? No problem, that’s an answer I’ve answered many times before. Check out any of the following posts:

And to be really informed, don’t miss my post on the true cost of a financial advisor.

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.