How Much Does A Financial Advisor Cost?
by Nabamita Sinha Finance 23 August 2023
As you work to accomplish your financial goals or start to prepare for retirement, the expertise of a financial advisor can prove indispensable. Although many people appreciate the benefits of consulting a financial planner, some assume that professional financial advice costs too much – and is only reserved for those with large incomes or a high net worth.
However, the average cost for a financial advisor is more affordable than many assume. More importantly, the benefits of paying for professional financial advice far exceed the costs of working with a financial advisor.
But just how much does a financial advisor cost? In this post, we detail the answer to this question, as well as explain different fee structures and potential ways to reduce financial advisor costs.
How much does a financial advisor cost per year?
Financial advisor costs vary and are determined by a number of different factors, including:
- The type of financial advice: an advisor may charge a different fee for estate or retirement planning than they would for more general investment advice or consulting on wealth creation, for example.
- Whether they manage your assets: while some individuals may want an advisor to draw them up a financial plan they can implement themselves, others would like to have money managed for them – which incurs ongoing fees.
- The complexity of your financial situation: generally, the more complicated your financial situation, the more work required, and, consequently, the higher the financial advisor costs
The fee structure the financial advisor uses: how you pay your financial advisor influences how much you’ll pay in fees – which we’ll cover in the next section.
Different fee structures for financial advisors
The cost of a financial advisor per year is largely determined by their fee structure. Here’s a brief breakdown of the different ways that financial planners charge their clients for financial advice:
- Percentage of Assets Under Management (AUM): this is where your financial advisor’s fees are a percentage of the total assets they manage on your behalf. This could also follow a tiered structure where, generally, the higher your AUM, the lower the percentage they charge.
- Performance-Based Fees: alternatively, your financial advisor may be compensated based on their success in managing your investments. Under this structure, you could pay your advisor increasingly higher fees as they hit different, pre-defined benchmarks.
- Fixed Fees: here, the financial advisor charges set amounts for a particular service, such as developing a financial plan.
- Hourly Charges: though not as common as the above fee structures, some financial advisors may charge by the hour, but this typically applies to consulting or more complex financial situations.
It’s possible that a financial planner may subscribe to one of these fee structures or use a combination of them.
How to minimize financial advisor fees
Here are a few ways that you can reduce your financial advisor costs:
- Have your finances in order: if you have all your financial records, monthly outgoings, tax obligations, etc., well-organized, your financial advisor has less initial work to do – which could help lower your fee.
- Define clear financial goals: when you know what you’re trying to achieve, you can better communicate with your financial advisor from the offset. This allows them to develop a comprehensive financial plan with less effort.
- Understand the different fee structures and confirm which they use: ask about the financial advisor’s costs in the initial consultation. This gives you an accurate understanding of the fees you’ll be charged and avoids disappointment and conflict in the future.
- Speak to several financial planners: it’s wise to consult with different financial advisors to find one that both offers excellent value and is best suited to help you accomplish your goals. Similarly, if you already have a financial advisor and aren’t satisfied with their performance, consult with other planners to determine if they could do a better job of managing your money.
- Negotiate: while discussing the financial advisor’s costs, ask if there are any fees they’re willing to waive. Similarly, as your relationship with your advisor progresses, you can attempt to renegotiate their fees periodically, e.g., annually.
- Consolidate investment accounts: if you have assets under management with different financial advisors, bringing them all together can help to reduce fees.