How Much Does Financial Advisor Cost

In many cases, people (entrepreneurs, investors for example), who are financially stable, find it difficult to keep their eyes and hands on their wealth and investments. It is because these people have other priorities that also need their attention. For this reason, they tend to hire financial advisors or planners who can help them in managing their own money. Moreover, paying for professional help is especially effective for those who are too busy to handle their financial assets.

Although most of us can benefit from the expertise of a financial planner, the only thing that can stop us from hiring them is the service fees, which can, for the lack of better term, hurt your wallet. Due to the professional costs, some people would actually consider it as an investment in the long run. But how expensive can the expenses be? How much do we usually pay for a financial planner fee?

Cost of a Financial Advisor

The cost of financial planner can range from $250 to $5,000 or more, depending on the type of advisor you want to hire and the mode of payment. Apparently, financial advisors charge their service fees in many different ways. They have flat fees, hourly rates, asset percentages, commissions, and retainer fees.

Flat Fees

Most of the time, they charge a flat rate between $1,000 and $2,000, which already provides a comprehensive financial plan from the client’s portfolio. Aside from that, the advisor can make suggestions on financial matters and run simulations that may give an outlook on how much their clients can spend on basic financial needs like college education for the children and retirement funds.

“The advisor may propose a rejiggering of asset allocation, and will factor in such things as clients’ ages, incomes, family sizes and so forth,” wrote Larry Light, a Forbes contributor.

Hourly Rates

However, there are financial planners who charge by the hour. The typical financial advisor cost on an hourly basis ranges from $250 to $550 per hour, with total fees that can run from $3,000 to $5,000.

Evidently, the hourly rates are higher than the flat fees basically because it involves more work. Since the financial planners are paid by the hour, you can expect them to provide a more comprehensive result within a given period of time. And besides the financial plans, you can also ask the advisor to work on other financial plans like making an estate plan or a business plan.

Percentages of Client’s Assets

This means that clients pay a percentage of their total assets, and according to Investopedia, this mode of payment is the most expensive type. The percentage can range from 0.75% to 1.5% annually. For example, if a financial planner charges a 0.75% on a $2 million asset, then he will receive $15,000 as his service fees. But take note, the more assets a client owns, the lower percentage he or she pays.

“Many clients like this structure as fees are debited right from accounts so no check has to be written and the fees don’t have to come out of the monthly budget,” said an article published in The Balance.

If for instance, your financial advisor chooses this alternative, then you should be able to put your complete trust on him or her in making the right decisions. You’ll also be at peace because financial advisors will not make risky choices that can compromise their payment. It may sound selfish, but since the value of their fees is based on the asset percentage, advisors will make sure that they handle their clients’ portfolio with the best of their abilities.

Commissions

When financial advisors ask for commissions as payments, they can receive a front-end load that usually comes with insurance purchases and mutual funds or annuities in the form of surrender charges. Once their services are completed, financial advisors can get their payment directly from the investment firm.

To play it safe, always ask for a clear explanation as to how your financial planner wants to be paid. At the same time, ask the exact amount he or she wants to receive if you decide to purchase the recommended insurance policies and/or investments.

Retainer Fees

Retainer fees are basically upfront costs that you pay for the services a financial advisor renders. This type of payment is ideal if your financial situation has a lot of parts to cover just like small businesses, rental properties, and ongoing stock investments, to name a few.

Once the advisor learns the details of your situation, he or she will inform you of the retainer fees, either on a quarterly or yearly basis, as well as the services rendered during the consultation. You will sign a formal written contract, which contains all the necessary services and fees you need to know.

One of the best things about retainer fees is that you don’t have to worry about receiving confusing advice and recommendations. It’s because these costs are not related to any form of investments, so you can be confident about getting objective plans and/or suggestions.

The Best Time to Hire a Financial Advisor

As previously mentioned, anyone can benefit from the expertise of a financial advisor. However, their service fees are not that affordable, so to speak. It’s not because they only want to work with clients who can afford their expertise, but because they do several, arduous tasks related to money. One major mistake can actually ruin their reputation permanently.

But assuming that everyone is able to afford their services, the question now is when would be the best time to hire financial planners? Considering how high the expenses are, the most appropriate time is when you have too many finances to take care of, and you just can’t handle them on your own.

Before hiring a financial advisor, however, you must first look at the benefits you can get from the services and analyze the costs you may need to pay. By doing this, you may be able to cut the necessary fees because the advisor would not take so much time to complete the job.

Moreover, you have to make sure that you are comfortable working with the advisor you hire. Light further said that a good relationship between a client and financial advisor significantly depends on a concession between the parties and a vital candor.

“If your advisor is an arrogant individual, that won’t happen,” he said. “Your money is important. Both what you accumulate for the long-term, and what pay right now to reach that goal.”