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.