What is the cost of a financial advisor?

How much does a financial advisor cost? This is one of the first questions most people ask when someone suggests hiring a professional. Cost matters in every decision you make, but it becomes especially important when you are hiring a financial advisor. An advisor is supposed to help you build and preserve your money. Naturally, you want expert guidance without overspending.

The truth is, the cost of a financial advisor can vary widely based on several factors, such as their experience, the type of services you need, the time spent working together, your portfolio’s worth, and the fee structure they follow.

Understanding these different structures is essential because it helps you compare multiple financial advisor fees effectively, know what you are paying for, and choose someone who fits your budget perfectly.

What is the average cost for hiring a financial advisor?

The average cost of hiring a financial advisor varies depending on the fee model they offer. Let’s understand the different models in the market that you can choose from and how much they may cost you:

1. Percentage of Assets Under Management (AUM)

This is the most common cost structure for ongoing investment management. When you choose this model, the financial advisor charges you a percentage of the total value of your investment portfolio. The AUM model is linked directly to your investment assets. It rises or falls with your portfolio’s performance. So, if your investments do well and your portfolio’s value changes, you could end up paying more or less, as this model usually follows a tiered structure.

What you can expect to pay

The financial advisor cost would differ based on whether you hire a robo-advisor or a human advisor. The former can be relatively less costly as they run on algorithms and do not provide personalized financial advice. The latter, although relatively expensive, can offer better guidance and personalized recommendations with a human touch.

Here’s how much each of these financial advisors could cost you:

• For a robo-advisor: You may pay around 0.25% to 0.50% per year.
• For a human financial advisor: You may typically pay 0.5% to 1.5% of assets under management.
• Average around: 1% annually for traditional financial advisors.

This model is usually paired with full investment management services. That includes developing and maintaining investment strategies, adjusting your portfolio based on market conditions and opportunities, and aligning everything with your financial goals and risk tolerance. An important thing to note here is that because this is an ongoing service, you are paying for continuous oversight and hands-on management.

Who this is ideal for

People who want continuous financial guidance with their investment portfolio can benefit from this cost structure. The financial advisor’s fees would depend on the value of your overall portfolio. Since the advisor would cover all your portfolio-related concerns, you could ideally get a cost-effective deal.

2. Flat annual fee, also known as the retainer model

Some financial advisors offer a retainer model, which involves paying a fixed fee for ongoing financial assistance. The cost of a financial advisor is usually pre-fixed in such arrangements and is paid annually. The fee remains the same irrespective of your investment portfolio’s size and value.

What you can expect to pay

• You may typically pay $2,500 to $9,200 per year.

This fee would ideally cover ongoing support and planning, portfolio rebalancing, strategizing, periodic updates, and guidance whenever you need it. It can be helpful if you want a long-term association. All you need to do is pay them annually, and you can continue the arrangement for years.

Who this is ideal for

Individuals who want a stable and fixed cost. There is no fluctuation in the financial advisor fees based on the size of the investment portfolio. You pay the agreed-upon cost until the chosen term is over. Post that, the fees can be negotiated based on your needs and the advisor’s pricing model.

3. Hourly fees

The hourly fee model lets you pay by the hour. In this case, you pay the financial advisor for every hour they work for you. You can opt for this model for isolated advice on varied financial concerns. However, you would not get ongoing support.

What you can expect to pay

• $150 to $400 per hour

The financial advisor’s cost per hour could include hourly services, such as tax planning, investment selection, budgeting, debt management, and more. You can hire a financial advisor and speak to them about any or all of your financial concerns for as many hours as you like and pay them accordingly.

Who this is ideal for

People who want one-time financial advice can benefit from this model. You do not have to pay more when you do not need continuous support. You can hire a financial advisor as and when you like and for as many hours as you like. You get more flexibility and control over how and when you pay the financial advisor with this model.

4. Project-based fees

This type of model can be used when you need to hire a financial advisor for a specific project. It may sound similar to the hourly model. However, while both models are used for specific concerns, the duration of the association can be longer for project-based arrangements. For project-based consultations, financial advisors charge a one-time planning fee.

What you can expect to pay

• Usually around $3,000. However, the actual cost may vary depending on the complexity of the financial advisor’s tasks.

This fee typically covers the entire financial plan. This can include investments, budgeting, retirement planning, insurance planning, tax planning, and other elements of personal finance.

Who this is ideal for

Anyone who needs a detailed plan for a specific financial concern can use this model. For instance, say you have accumulated a lot of debt and need to hire a financial advisor who can help you manage your outstanding loan obligations. In this case, you can opt for this model and work with the financial advisor for a stipulated amount of time.

The average cost for hiring a financial advisor may vary based on your exact situation and the time needed to get you out of the debt trap. However, you can discuss these details with the financial advisor before hiring them.

5. Commissions

Apart from fixed financial advisor fees, professionals can also earn through commissions from the products they recommend. If a financial advisor sells or recommends a financial product to you, such as an insurance plan or mutual fund, they may earn a commission on the sale. Such professionals are known as commission-based financial advisors.

What you can expect to pay

• 3% to 6% of the investment or transaction’s value

Commission-based financial advisors may charge lower upfront fees, since they earn primarily from commissions. In some cases, they may not charge for financial advice at all and earn solely through commissions.

Who this is ideal for

Individuals who prefer to only pay for financial products can opt for this model. In this case, you do not have to pay any financial advisor fees for the advice. You only pay a commission on the transaction value. This can be helpful if you are looking for specific financial products.

6. Costs for comprehensive planning services

You can also hire a financial advisor for comprehensive financial planning services. These can include, but are not limited to, the following:

• Retirement planning
• Budgeting
• Tax optimization
• Higher education savings strategies
• Estate planning
• Debt management
• Investment management

And more

What you can expect to pay

• Flat fees: $1,000 to $3,000
• Hourly rates: $150 to $400

Who this is ideal for

If you need comprehensive financial advice and help with multiple areas of personal finance, you can consider such services. The exact cost of a financial advisor offering such a model will depend on the number and type of services you choose.

7. Wealth management fees

Wealth management services are for individuals with a high net worth and complex investment portfolios. It can include services like estate planning, business succession, generational planning, and more. Because of the breadth of services involved, wealth management fees are structured slightly differently from those for general financial advisory services.

What you can expect to pay

• Percentage of AUM: Most wealth management firms follow the percentage-based AUM model. On average, you can expect to pay about 1% per year.
• Fee-only wealth management: Some wealth managers may also offer fee-only services, where, instead of paying a percentage, you pay through flat retainers or hourly billing. The exact cost can differ from firm to firm.
• Flat annual fees: You may typically pay $5,000 to $10,000 per year. However, the fees may be higher if your financial situation is especially complex or if you require more extensive planning.

Who this is ideal for

People with high net worth and complex financial needs can benefit from such arrangements. Since the average cost for hiring a financial advisor for wealth management is usually high, this model may not be suitable for everyone.

Is it worth hiring a financial advisor, given the costs?

The cost of a financial advisor can feel like a deterrent, and you may hesitate if you are trying to save money. However, looking at the cost alone can be a bit short-sighted. While hiring a financial advisor does require spending money, it also gives you structured, informed guidance that can help you build more wealth over time.

A financial advisor can help you make better financial decisions. These decisions can help you build long-term financial growth and stability. They can assist you with major financial goals, such as retirement planning, your children’s higher education, buying a home, or managing student loans. They can also help with everyday needs like budgeting, selecting suitable investments, and optimizing tax planning, as well as more complex responsibilities such as estate planning.

So, when you look at the value, support, and guidance they provide, financial advisors can be worth the cost, especially if you want expert, professional assistance to improve your overall financial health and stay focused on your long-term goals.

Final thoughts on financial advisor costs

Now that you know the average cost of hiring a financial advisor, you have a clearer picture of what to expect. Keep in mind that these fees are not set in stone and can vary from one advisor to another and from one client to the next. The exact fee can only be determined once the details of your financial needs are understood, such as the type of service you want, the complexity of the work involved, the duration of the engagement, and any additional support you may require during the association.

Still, the pricing breakdowns in this article can serve as a helpful starting point. They can help you estimate what hiring a financial advisor might cost and allow you to plan accordingly. Once you are ready, you can use our advisor directory to find a financial advisor near you who fits your budget and your financial goals.

Frequently Asked Questions (FAQs) about the average cost for hiring a financial advisor

1. How much does a financial advisor cost?

The cost of hiring a financial advisor can vary depending on the pricing model they use and the services you hire them for. Nevertheless, you can refer to this general breakdown:

• Percentage of AUM: Typically ranges from 0.25% to 1.5% of the assets under management. The lower end usually applies to robo-advisors, while full-service human advisors charge higher percentages.
• Flat annual fee: Generally between $2,500 and $9,200 per year, depending on the advisor’s experience, service level, and complexity of your financial situation.
• Hourly fees: Most advisors charge around $150 to $400 per hour.
• Project-based fees: For specific financial projects, such as creating a one-time financial plan, fees typically start around $3,000.
• Commissions: Some financial advisors earn commissions of 3% to 6% on the investment products they recommend.
• Comprehensive planning services: Flat fees are usually between $1,000 and $3,000, while hourly rates typically range from $150 to $400.
• Wealth management fees: For AUM-based fees, it can cost around 1% per year, whereas flat annual fees generally range from $5,000 to $10,000.

2. How can I pay less in financial advisor fees?

There may not be a direct way to reduce the fees a financial advisor charges, because each professional sets their own pricing based on their expertise, service model, and the complexity of your needs.

However, your overall cost can still vary depending on your choices. If you are looking to pay less, choose a fee structure that better suits your situation. For example, you might opt for an hourly or project-based model rather than a full AUM-based arrangement if you only need occasional advice.

It also helps to compare multiple financial advisors. Many professionals offer similar services but may charge differently. You can review and compare their fee structures to choose someone whose fees fit your budget.

3. Is it important to hire a financial advisor?

Yes, hiring a financial advisor can be very important. Financial advisors can help you achieve your financial goals with a structured approach. They help cut through the noise so you can make the right financial decisions.

4. Are financial advisor fees fixed?

Financial advisor fees are not completely fixed. While financial advisors usually have a defined fee structure, the actual amount you pay can vary. Your final cost depends on the type of services you need.