Here is a question that I’m often asked: What are typical financial advisor fees? Plus n-variations, like questions about typical fees for a fee-only financial advisor.
In fact, I get this question so often that I’ve answered it several times in writing, like in my posts:
- 14 Types of Financial Advisors: Managing Acronym Soup
- Financial Advisor Rates: The Surprising Truth
- The True Cost of a Financial Advisor
Even co-contributor Austin has touched on this issue, “How do financial advisors make money?”
So if you suspect that, hey, maybe I’m getting a little tired of this question, well, you’re right. I am getting sick of answering it.
So let’s make this the post to end all posts on typical financial advisor fees.
Types of financial advisors
As has been mentioned I-don’t-know-how-many-times on this website (here, here, here, and here), there are different kinds of financial advisors, and each has a different fee structure. To recap, the different kinds are:
- Commission-based: commission-based financial advisors make money each time that they convince you to buy something, like an annuity. As I’ve mentioned before, I don’t recommend commission-based advisors because, for them, they’re more interested in selling you something than helping you with your finances.
- Fee-only and fee-based advisors: fee-only and fee-based advisors will charge you an hourly rate for their services, much like you might get charged by a lawyer. The difference between the two is that fee-only advisors only make money off their fees, while fee-based advisors also earn commissions.
- Percentage-based advisors: percentage-based advisors are active money managers — they’ll watch over your investments and handle them for you, and you’ll pay them some percent of those assets each year. As I’ve said in the past, I like this because it aligns incentives: when you make money, your advisor makes (more) money.
Typical financial advisor fees by type
Okay, so, now that you know about the different types of financial advisors, here’s how they charge:
- Percentage-based advisor rates: the industry standard for percentage-based advisors is 1% of assets per year. More than this and you’re kinda being ripped-off. Most funds will not be able to make enough returns to justify more than 1% of assets per year. (As I said in my post on the true cost of a financial advisor, this 1% can add up to more than a quarter of a million dollars in the long run).
- Fee-only and fee-based advisor rates: In general, you can expect to pay anywhere from 150 to 300 dollars per hour for this sort of advisor. (This is also covered in the post on financial advisor rates.) These are a great choice if you want to implement a plan that someone else helps you put together (i.e. be more active in your money) or if you have a specific query that you’d like help with.
- Commission-based advisors: Just avoid these. They should give you advice for free. They’re trying to sell you stuff.
Some advisors will also charge you a retainer, in case you need their advice in the future or whatever. This is a pretty common practice not only among financial advisors, but across industries, so yeah.