Another day, another reader question. Today, Tom F. wants to know, “How much do financial advisors cost?”
Here’s the thing, Tom F., I’ve answered this question before. A lot of times before. Like when Katie G. asked about the average financial advisor fee.
- Average Financial Advisor Fee: How Much Is Too Much?
- How much do financial advisors charge?
- Typical Financial Advisor Fees
- The True Cost of a Financial Advisor
- Financial Advisor Rates: The Surprising Truth
Fortunately for you, gentle reader, I have a dream. I dream that one day I will have answered this question so many times that everyone will know the answer. I have a dream that no one will ever need to ask this question again, because I’ll have so exhaustively answered it.
That’s my dream. Let’s make that dream a reality.
The 3 types of financial advisors
Okay, if you want to know how much a financial advisor costs, first you need to understand the different types of financial advisor.
While there are a ton of different types of financial advisors, the way that they charge can be broken down into three main categories:
- Fee-only and fee-based financial advisors: Like a lawyer would, fee-only and fee-based financial advisors charge an hourly rate for their services. Alternatively, they sometimes will charge a per project rate, or have a flat fee for creating a plan tailored to your financial circumstances.
- Commission-based financial advisors: Commission-based financial advisors get a cut of everything they sell you, and otherwise won’t charge a fee. My broker, for instance, gets a cut of every stock that I buy. Unfortunately, this means that she can be aggressive when it comes to recommending changes to my portfolio, because that’s how she gets paid. She doesn’t have my best interest in mind, she’s trying to sell me stuff.
- Percentage-based financial advisors: Percentage-based financial advisors are active money managers. They will oversee all your investments, for a percent of those assets each year. These are a good choice if you don’t want to be too involved with your own finances: if you just want someone else to handle it. On the other hand, if you’d like to be in charge, a fee-only advisor might be a better choice.
How much do financial advisors cost?
Okay, now you understand the 3 different types of financial advisors, here’s how much you can expect to pay:
- For a fee-only financial advisor, you are looking at an hourly rate of anywhere between 150 to 300 dollars — some charge more than this, but I wouldn’t pay that much.
- For a percentage-based advisor, the industry standard is 1% of assets per year — the idea being that financial advisors create at least that much value. However, depending on how much research you’re willing to do, you can get those services for cheaper (or even free, if you’re willing to do it all yourself.)
So that’s how much financial advisors cost, but that doesn’t cover everything. You need to consider the returns on your investment that you would make with or without a financial advisor. This is covered in my post, “The True Cost of a Financial Advisor.”