What affects the cost of a financial advisor?
Financial advisors mainly charge a percentage of the assets they manage and an hourly or flat fee for their time.
If you have a one-time project that only takes a few hours, like making sure you have the right kind and amount of life insurance or reviewing your investment portfolio, that could cost you a couple hundred dollars. If you need ongoing investment management for a quarter of a million dollars, you could be looking at an account management fee of tens of thousands of dollars.
Let's go over a few of the most important factors that affect the cost of a financial advisor.
Amount of assets
Some financial advisors charge an annual assets under management (AUM) fee. The AUM fee is typically 1% of the assets they oversee per year. That means if you're an investor with $750,000 worth of investments you want an advisor to manage, they would charge you a $7,500 annual fee.
This AUM fee decreases the more you invest, as advisors provide a discount for high net worth individuals based on the higher profits their large account balances generate. Financial advisors may charge a higher percentage fee to manage lower account balances – think those under $500,000 – to compensate for the smaller total fees.
Time
Projects that take less time cost less money. Your financial advisor will charge a lower advisor fee to help you make a one-time adjustment the risk of your investment portfolio than create a comprehensive financial plan complete with ongoing advice.
You will also likely pay more for your first session, and less for any follow-ups. Fee-only financial planners charge between $1,000 and $2,000 to put together a comprehensive financial plan. For ongoing advice, they usually charge around $200 per month.
Experience
Like most professionals, financial advisors with years of experience will charge a higher advisory fee for their expertise.
What financial services are available?
Some financial advisors offer a wide variety of services, while other specialize in a few areas. Below are several different types of investing and financial planning support you might need:
General financial planning
Your financial advisor can take a holistic look at your income, debts, and assets to create a plan to reach your financial goals.
Retirement planning
From setting savings goals to determining which kind of retirement savings account (401k, IRA, etc.) is right for you, financial advisors simplify planning for retirement. They can help you figure out if you're on track to retire at your target age, make recommendations for investment allocations based on your risk tolerance, and give financial advice to keep -- or get -- you saving at the right pace.
Life insurance review
It can be difficult to choose between different types of life insurance and figure out how much coverage you need. A financial advisor can work with you to find the right life insurance plan for you and your family.
Investment review
Your advisor can take a one-time look at your investment portfolio. They'll take a look at where you're already investing and offer advice if you need help adjusting your investment strategy.
Tax planning
Another common type of financial planning is taxes. Your advisor can give tax advice on the right combination of write-offs, deductions, and strategies for minimizing what you pay come tax season.