There are different kinds of fees charged by advisors. An advisor can make money by either charging a percentage on the total value of your portfolio, on a per-hour basis, or a flat fee. Few advisors also earn an income through commissions by selling financial products and services.
In today’s time, financial advisors also want a sustainable model to meet their financial needs. Therefore, several advisors have now structured their fees by combining different elements of fee and commissions. It is recommended to do your research before hiring a professional financial advisor to know the fee model used by them for their financial services.
Read below to know the different kinds of fee structures used by financial advisors so you may hire the most suitable advisor for your unique requirements.
What is the typical cost of hiring a financial advisor?
The cost of hiring a financial advisor differs from case to case. It will depend on your financial situation, assets, goals, and also the type of fee structure that your advisor has. For instance, If you are a high-net-worth individual (HNWI), your annual fixed fee retainer may be higher than $1,000. On the other hand, if an individual hires an advisor who charges a commission, the commission rates can be around 1% or slightly more. Moreover, if the advisor uses the Assets Under Management (AUM) fee model, he may charge at least 1% of AUM for advising services.
Once you have all the information, you can conduct a financial advisor fees comparison and make a decision.
Is it worth hiring a financial advisor?
Having clarity about your financial goals would be ideal before you meet an advisor. You may contact an advisor if you have crossed a financial milestone or have undergone a lifestyle change because of marriage, job, childbirth, divorce, etc. These events have a considerable impact on your finances, and you may require an advisor's help to navigate these situations. You can also contact an advisor if you are new to the world of finance and have just started earning or investing. The advisor can help you manage your money and plan for your short-term and long-term financial goals and objectives.
In the end, hiring a financial advisor is a personal choice. Hence, it would be best if you tried chalking out your objectives before you get in touch with the advisor. In addition, if you feel stuck or are unclear about your goals, it may be wise to see an advisor to get clarity on the same.
Different types of fees structures used by financial advisors
1. Flat fee
Advisors that use a flat fee model to provide limited or comprehensive financial advice to their clients. They charge a flat fee based on the services required by the clients. The engagement may be carried out for a one-time service or may continue on an ongoing basis. For example, an advisor may charge a fee of $1,500 to $3,000 for designing an exhaustive financial plan as per the client’s financial needs and goals. The advisor’s costs can vary based on their expertise and years of experience.
2. Hourly fee
Several advisors charge hourly rates for their services. In most cases, they will have hourly rate payment plans for clients. These advisors are ideal for investors who have a small investment portfolio or are looking for some general investment and finance tips. The hourly charges typically fall in the range from $250 to $500 per hour, and the basic package may include a three-hour consultation.
3. Tiered management fee
Herein, asset management charges are fixed which means every client pays the same rate if the value of their assets is at a certain level. For example, the financial advisor may charge a rate of 1.75% for the first $250,000, 1.50% for the next $750,000, 1.25% on the next $4 million and so on.
Generally, the payments to the advisor are made on a quarterly basis. Thus, a change in the asset's market value will tend to affect the advisor's absolute fee.
4. Commission–based fee
Some advisors sell third-party products, which can include insurance, mutual funds, and more. These advisors earn a percentage of commission on every financial product they sell to their clients. Generally, investors are advised against hiring such advisors as they are not fiduciaries and may not keep your best interest in their minds.
5. Stacked fee
You must pay stacked fees if you seek financial advice directly from an asset management company. Several companies may charge this fee and then invest your money into third-party securities. These securities also come loaded with management fees, and you may end up paying the advisory cost twice. Hence, you must choose such an option carefully.
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How to negotiate for a lower fee with the advisor
You are well within your rights to negotiate a financial advisor’s fee but you need to explain why you feel the fee is too high and give valid reasons for the advisor to take you on as a client for a lesser fee that he usually charges. You can ask for fewer services offered by the advisor and use that to justify a lower fee or bring in a sizable portfolio that the advisor would like to manage so you will have more control over the charged fee.
To conclude
When looking for a financial advisor, keep in mind that the one who charges the least fee may not be the right advisor for you. Your decision should be based on which advisor offers you the best value. Ascertain which services you require and how much they are worth to you. If your current advisor provides you the best value, stick with him. However, if that is not the case, you can look for a new financial advisor who can help you meet your financial needs and attain your present and future financial goals and objectives.
Use the free advisor match tool to connect with experienced and certified advisors who will help you manage your money effectively and best fit your budget. Please provide us with basic details about yourself, and the match service will connect you with 1-3 advisors suited to meet your unique financial goals and needs.