By Mike Rogers, AIF®, Founder and President of 360 Financial
What Should You Pay When Working with a Financial Advisor?
The appropriate fee for a financial advisor can vary widely depending on the services they provide, the advisor's experience, and their business model.
Typically, you might see fees structured as a percentage of the assets they manage for you, a flat fee for services, or an hourly rate. When you pay your advisor based on assets under management, i.e. AUM, your costs will come off your invested assets automatically. In other words, you won’t have to cut a check for your advisor at the end of the year.
With fiduciary financial advisors, it’s most common that your cost is an AUM fee that decreases as your assets under management goes up.
For example, if you have $1M in AUM, then your fee might be 1.2%. However, if you have $3M in AUM, then your fee might be .95%. If you’re paying based on AUM, it’s important to make sure that there aren’t any hidden fees, such as kickbacks to the advisor based on selling you certain commission-based products.
If you’re working with a fiduciary financial advisor, then this isn’t something that you have to worry about, as they are legally obligated to act in your best interest at all times.
Fee Structures Explained
Percentage of Assets Managed
One common method is for advisors to charge a percentage of the assets they manage on your behalf.
This rate often ranges from about 0.5% to 2% per year. For example, if an advisor manages $1,000,000 for you and charges a 1.2% fee, you would pay $12,000 annually for their services. This model aligns the advisor's incentive with your success; if your assets grow, they earn more, which motivates them to keep your portfolio growing.
In addition, as your wealth grows, you typically have a much more complex financial picture that requires more frequent meetings and financial planning.
Typically, if you have $1M or more in assets under management with an advisory firm, you’ll get a financial plan as a complimentary service. If you are working with a wealth management firm that has tax and estate planning specialists, then as part of your service, you will also receive tax planning services and estate planning guidance.
Typically, the greater your assets under management the more value you extract from your advisory team.
As the complexity of your financial situation goes up, there is a greater likelihood that you will be significantly under optimized should you try to manage everything on your own.
Flat Fee
Another option is a flat fee structure.
This is like paying a set price for a specific service package, regardless of your asset size. This might be appealing if you want financial planning advice without tying the cost to your investment amount. For instance, the advisor might charge $2,000 per year for services such as investment advice, retirement planning, and regular check-ins.
It should be noted that you’re unlikely to find someone who will manage your investments for you for a flat fee. A flat-fee structure is more typical with a financial planner who gives you a plan that you will need to execute on your own.
Hourly Rate
Lastly, some advisors charge by the hour, similar to how a lawyer might bill you.
This could be a good choice if you only need occasional advice or specific questions answered rather than ongoing management. Hourly rates for financial advisors typically range from $200 to $400 per hour.
Which Fee Structure Is Right for You?
Choosing the right fee structure depends on your needs.
If you have $1M or more of investments and want continuous management, a percentage-based fee will likely make the most sense. However, if you're just starting out or have a simpler financial situation, a flat fee or hourly rate might be more cost-effective.
It's also important to consider what you're getting for your fee.
A good financial advisor will not only manage your investments but also help you with financial planning, setting goals, and making informed financial decisions.
For example at 360 Financial, a Wealth Management firm that helps clients across the U.S., every client receives a LifeWealth Plan that is aligned with their vision and values.
Clients get support with their tax planning, financial planning, retirement planning, and estate planning as well as guidance when figuring out health insurance and long-term care.
This suite of services means that you’re never wondering if you’re going to be okay when you stop working. You’ve got a comprehensive plan that takes every single aspect of your financial and family life into account.
Final Thoughts
There's no one-size-fits-all answer to what an appropriate fee for a financial advisor should be.
It will depend on your financial situation, the type of services you require, and how you prefer to pay for those services. Understanding the different fee structures and comparing what is included in those fees will help you make an informed decision that aligns with your financial goals.
Remember, the cheapest option isn't always the best, especially if it means receiving a lower level of service or expertise that could cost you in the long run.
Make sure you understand what services are included and that you feel the value justifies the cost.
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Schedule a 15-minute introductory call with a 360 fiduciary financial advisor to see how we can help with your retirement planning, financial planning, and investment management.
About the Author
Mike Rogers
Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.
In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”
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