Are you thinking of hiring a financial advisor, but have no clue how much it will cost? Working with a financial advisor can be a valuable investment when it comes to managing your money and planning for the future. The cost of a financial advisor ranges from a small percentage of your investment portfolio to several thousand dollars per year. In this blog, we’ll explore how much financial advisors charge, the different factors that can impact their fees, and whether financial advisory fees are tax-deductible.
How much does a financial advisor cost?
The fees charged by financial advisors can vary depending on a number of factors. Some of these factors include their level of experience, the complexity of the services they provide, and the region they are located.
The average cost of working with a financial advisor in 2023 ranges from:
– 0.25% to 2% of the assets they manage
– $2,000-$90,000 per year for comprehensive financial planning
– 3% to 6% commission fee on the products that they sell
– $200 to $400 for an hourly consultation
– Flat fee of $2,000 to $4,000 for a one-time service.
The costs vary greatly, as you can see.
Here are some financial advisor fee comparisons for specific regions:
How much time will a financial advisor charge for?
Financial advisors typically dedicate between 30 and 40 hours per year per client. If your financial situation is more complex and requires more intensive one-on-one analysis, evaluation, and help to work through major money decisions, then a financial planner may dedicate upwards of 50 hours per year.
What determines financial planning costs?
Financial planning costs can vary depending on several factors. Some of these factors include:
1. Scope of services: The range of services that a financial planner offers can affect the cost. For example, a comprehensive financial plan will cover many topics and may cost more than a financial plan that only addresses one financial topic.
2. Time: The amount of time that a financial advisor spends on your financial plan can affect the cost. The more complex your financial situation, then the more time it will take to create a comprehensive financial plan.
3. Expertise and experience: Like most professionals, a financial planner who is highly experienced and knowledgeable, will likely charge more than someone who is just starting out as a financial planner.
4. Fee structure: Financial advisors can charge in a variety of different ways and the fee structure can affect the cost of financial planning.
How do financial advisors charge fees?
There are a variety of ways that financial advisors charge fees. When you choose a financial advisor, it’s important to understand their fee structure. Here are some common ways that financial advisors charge for their services.
1. Assets under management (AUM)
Assets under management (AUM) is the total market value of the investments that the financial advisor manages on behalf of the client. Many financial advisory firms charge clients solely based on the amount of assets they manage. This fee pays the financial advisor to invest your money for you based on your short-term and long-term goals, risk tolerance, timelines, and other factors specific to your individual financial plan.
Cost: AUM fees typically range from 0.25%-2% of total assets being managed. For example, if you have around $500,000 in assets under management and the firm’s fee is 1% of AUM, then you would pay an annual fee of around $5,000 for financial advisory services. Generally the higher your asset level, the lower the percentage rate you will pay.
What you get: You receive investment management, and usually a comprehensive financial plan and guidance on how to achieve your financial goals. However, some advisors who charge an AUM fee offer only investment management, not financial planning.
Best For: If you are looking for a financial advisor who provides financial planning and can also manage your investments for you, then an AUM model may be best for you. Look for a financial advisor who charges 1% or less of the assets they manage for you. You may need at least $500,000 in investable assets, as most advisors have a minimum.
Fee-only financial advisor
Fee-only financial advisors charge a set monthly or annual fee. They earn money exclusively from the fees that they charge. This means that they do not earn commissions and are only compensated by their clients.
Fee-only advisors may charge by the hour, by project, by AUM, or a combination of these. Fee-only financial planners are often viewed as the most unbiased and transparent advisors.
Cost: Typically range from $2,000 to $90,000 per year.
What you get for that fee: Typically, comprehensive planning and investment management: The advisor will create a financial plan, help you implement it, monitor your progress and adjust as needed.
Best For: If you want to establish a long-term relationship with a financial advisor who charges you a fixed cost each year, then a fee-only financial advisor may be best for you.
Fee-based financial advisor
Fee-based financial advisors charge a set fee but may also accept commissions from investments. They are a hybrid between a fee-only and a commission-based financial planner. Sometimes they are paid directly by their clients and other times they earn commissions from products they sell to their clients. This means that there may be a potential conflict of interest.
Cost: Typically range from $2,000 – $90,000 per year.
What you get for that fee: Typically, comprehensive planning and investment management: The advisor will create a financial plan, help you implement it, monitor your progress and adjust as needed.
Best For: We generally do not recommend fee-based financial advisors as they may make recommendations based on how much commissions they will earn, rather than what’s best for you.
Commission-based financial planner:
Commission-based financial advisors receive commissions for financial products that they recommend. This may seem like the cheaper option upfront, but they will often not recommend the best products for you. They may suggest investments that have the highest commission fees, rather than the products that are best suited for you.
Also, commission-based advisors are typically more limited in the products and funds they can recommend to their clients because their compensation is directly linked to the products they sell.
Cost: Depending on the investment, the commission fee usually ranges from 3-6% on the products they sell.
What you get: Usually only investment management or an insurance product.
Best for: We generally do not recommend commission-based financial advisors as they may make recommendations based on how much commissions they will earn, rather than what’s best for you.
Hourly fees:
Some financial advisors charge by the hour. Hourly or fixed fees may be charged for a specific service such as creating a one-off comprehensive financial plan. You will be charged for the total amount of hours spent. Some financial advisors may have an hourly minimum you must reach per session, such as three hours.
Cost: $200 – $400 per hour
What you get: You usually have a meeting and then receive a financial plan. There is no ongoing financial planning support.
Best For: If you want to access a financial planner to help answer a couple of questions, an hourly-based financial advisor may be a good fit.
One-time fee:
Some financial advisors charge a one-time fee for creating a financial plan for you. This will include recommendations on where to invest and how to save, but you will need to implement the plan yourself.
Cost: $2,000-$4,000 per plan
What you get: You receive a comprehensive financial plan but there is no ongoing financial planning support.
Best for: If you are looking for a financial plan but you want to implement all of the recommendations yourself, consider paying a one-time fee. However, the downside of a one-time financial plan is that it is a static document. If your situation, the market, or the law changes, then your plan will need to be updated.
Financial Advisor Cost Comparison
| Fee type | Fee description | Typical cost |
| Assets under management (AUM) | The fee is based on a percent of the total investable assets of a client. | 0.25% to 2% annually for total assets being managed |
| Fee-only | A predetermined fee for comprehensive financial planning. | $2,000 to $90,000 per annum |
| Fee-based | A predetermined fee for comprehensive financial planning. The financial planner may also earn a commission on the financial product that they sell to their clients. | $2,000 to $90,000 per annum. |
| Commission | The financial planner earns a commission on the financial product that they sell to their clients. | Varies on the investment but the commission typically ranges from 3-6% of the product that they sell |
| Hourly fee | The rate charged per hour. This is usually for a one-off project with no ongoing support. | $200 to $400 per hour |
| One-time fee | The rate charged for one financial plan. This is usually for a one-off financial plan with no ongoing support. | $2,000 to $4,000 per plan |
What about robo-advisors vs traditional financial advisors?
Robo advisors use automated algorithms to help clients manage their investment portfolios. They are usually less expensive than traditional financial advisors and charge between 0.25% and 0.50% of assets under management. However, they only offer automated services and are limited in scope. They also offer fewer investment fund options.
A robo-advisor creates a very basic investment portfolio based on a client’s answer to a risk tolerance questionnaire and when the client needs her money back. A traditional financial advisor takes into account every aspect of a client’s life to create a comprehensive financial plan. Robo advisors’ limitations could mean clients miss out on thousands of missed opportunities.
Will Chat GBT replace human financial planners?
No. We do not expect Chat GBT to replace financial planners anytime soon. Financial planning involves complex decisions that require careful consideration and personalization.
A human financial advisor creates a holistic financial plan that takes into account your personal values, goals, and priorities. A financial plan should be comprehensive and collaborative. As you grow and change, your financial strategy should grow with you and take into account your updated situation. A one-off financial plan isn’t nearly as effective as an ongoing financial planning relationship.
Chat GBT may be able to give general financial advice, but it cannot understand your unique financial situation.
Where can I find information on a financial advisor’s fee schedule?
If you want to know how much a financial advisor charges, you can look at their Form ADV. Each fee type that the financial advisor charges for its investment advisory services will be clearly listed on that form (Part 2 Brochure, Item 5). Many financial advisors also list their fee schedules on their websites.
If you still have questions about a financial advisor’s fee schedule, feel free to ask them directly. They should be able to provide you with a clear explanation of their fees and how they are calculated. Here are some additional questions you can ask a financial advisor if you are currently seeking one.
Are financial advisory fees tax deductible?
The Tax Cuts and Jobs Act (TCJA) eliminated the deductibility of financial advisor fees in 2017. Financial advisor fees are no longer tax deductible for tax years 2018 through 2025. Prior to the Act, financial advisor fees were deductible as miscellaneous itemized deductions on Schedule A of the tax return if they exceeded 2% of adjusted gross income.
There are still some specific situations in which financial advisor fees may be tax deductible. For example, if you incur financial advisor fees in the course of producing or managing income that is taxable, such as in a business or rental property, those fees may be deductible.
Additionally, financial advisor fees may be deductible if they are related to tax preparation or advice, or if you pay them as part of an investment in a tax-advantaged account, such as a traditional IRA or 401(k).
It’s important to consult with a qualified tax professional to determine the specific tax implications of financial advisor fees in your individual situation.
How much money should I have to hire a financial advisor?
There isn’t a specific amount of money that you should have to hire a financial advisor.
However, we do generally recommend that you meet one of the following criteria before hiring a financial advisor:
- You are saving $1,000/month or more
- You have $70,000 or more in your bank or brokerage account
- You are making over $140,000 as an individual (or over $240,000 as a couple)
- You receive RSUs at work
- You have, or are receiving an inheritance
If you are just starting to accumulate savings, then it may not be worth hiring a financial planner. However, as you start to accumulate wealth and explore more complex financial decisions and investment strategies, then hiring a financial advisor may be beneficial. Ultimately the decision is up to you. Speak to a fiduciary financial advisor about your unique situation to determine whether they can help you achieve your financial goals.
What am I paying for when I hire a financial advisor?
When you hire a financial advisor, you are paying for their expertise and guidance on a wide range of financial matters. Financial advisors can help you with your entire financial picture. They can provide personalized recommendations and investment strategies based on your unique situation and financial goals.
Before you decide to work with a particular financial advisor, make sure that you understand their fee structure and what services that fee includes. Some financial advisors may charge extra for some services. A financial advisor should be upfront about what they charge so if they give you the run around then you may want to steer clear.
Here at District Capital, we believe money is a tool to help you live your best life. We are a fee-only financial planning firm. We offer comprehensive financial advice and investment management services for a set fee. There are no hidden costs and we never accept commissions. Our fees are very transparent and are published on our website.
Our financial planning annual advisory fee includes
- Written comprehensive financial plan
- Zoom meeting every four months, to discuss action items and new advice
- Unlimited email support
- Ongoing investment guidance
- Monthly newsletter
- Access to budgeting software
- Access to modern financial planning task tracker
- Access to our network of estate attorneys & tax professionals
How do I know if I am being overcharged by a financial planner?
If you are concerned that you have been overcharged by a financial planner, here are some steps you can take to determine what a reasonable fee should be.
1. Understand the fees: You need to calculate what fees you are being charged and how they are being calculated. If you have any concerns about the fees you are being charged, don’t be afraid to ask your financial planner for clarification. A good financial planner will be transparent about their fees and will be happy to answer your questions.
2. Compare fees: Do some research and compare the fees you are being charged with those of other financial planners in your area.
3. Review your account statements: Review your account statements to ensure that you understand the fees being charged and that they are consistent with the fee structure you agreed to. Look for any unexpected or excessive fees.
When should you fire a financial planner?
- When your advisor has not reached out to you in 12 months (It’s best practice to speak with a client at least once a year).
- When your advisor keeps talking down on you (Advisors need to have empathy and should be educating clients).
- When your advisor is putting most of your portfolio in high fees (Actively managed funds with high fees have been shown to underperform their benchmark over 90% of the time).
Is it worth paying for a financial advisor?
We are obviously biased, but we believe financial advisors are worth paying for. The benefit can significantly outweigh the cost. One study showed that financial advisors can potentially add about 3% in net returns each year. Another study published in the Journal of Financial Planning showed that those who had a comprehensive financial plan built up to four times more wealth than those with no plan.
If your financial planner can help you earn more each year than the fee they charge then it’s definitely worthwhile. Not only will they help you make more money, but they will also provide financial peace of mind and save you time trying to learn personal finance on your own.
Financial advisors typically have high retention rates, indicating that clients see the ongoing value of financial planning. We personally believe that working with a financial advisor and having a comprehensive financial plan in place is one of the best investments you can make for yourself, for your future self, and for your loved ones.
The ultimate decision about whether a financial advisor is worth your money or not will depend on your specific situation and the financial advisor that you choose. If they align with your goals, act in your best interest, listen to your needs, and work with people in a similar situation to yourself, then most likely they will be a good financial investment.
Work with a financial advisor to maximize your money in 2023
The cost of a financial advisor can vary depending on several factors, including their level of expertise, the scope of services provided, and the method of payment. Before choosing a financial advisor, it’s important to ask about their fees and how they are compensated. By understanding the total cost of working with a financial planner, you can decide whether this investment is right for you.
If you aren’t sure where to begin or if you still have questions about working with a financial advisor, you can contact our team at any time. If you are interested in a comprehensive financial plan, schedule a free discovery call today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
