WealthChannel

ADVERTORIAL

How Much Does A Financial Advisor Cost?

A financial advisor might cost less than you think, but the devil’s in the details.

Get matched with a financial advisor who suits your needs.

By Michael Johnston, CFA

By Michael Johnston, CFA

April 2024

Many Americans struggle with the decision of whether or not to hire a financial advisor

At a high level, there is a fairly straightforward framework for making this decision. Consider the costs and benefits of hiring an advisor; if the benefits outweigh the costs, you will create value – and wealth – by hiring an advisor. 

So how much does a financial advisor cost? This guide will explain the most common cost structure, as well as some alternative fee arrangements. It will also detail the services you can expect in exchange for the fees paid. You can also get matched with a vetted fiduciary advisor and set up a free introductory call. 

Two Guiding Principles

Before diving into the numbers, there are two important principles to keep in mind. 

First, quality advisors will be open and transparent about their fee structures. If you find that an advisor is unwilling to share details about how he or she gets compensated, you probably don’t want to work with that advisor. 

Second, there are three general pricing models for financial advisors. Investors are generally better off working with a fee-only advisor

  • A Fee-Only Advisor is compensated entirely by fees paid by clients. They don’t receive any commission-based income for selling products.
  • A Fee-Based Advisor is compensated primarily by fees paid by clients, but may also receive commissions from funds, insurance companies, or other financial institutions.
  • A Commission-Based Advisor is compensated primarily by commissions earned for selling products, opening new accounts, or other metrics.

A fee-only advisor is typically a fiduciary, who is legally bound to act in the best interest of clients. A commission-based advisor must meet a “suitability criteria” but is not a fiduciary who is required to act in the best interest of clients.

AUM Model (With Real World Examples)

The most common model for fee-only advisors involves charging clients a percentage of assets under management each year in exchange for financial advisory services.

This fee is seldom presented as a single number; rather, there is often a “sliding scale” of fees. Below is a real life example from Rhame & Gorrell Asset Management, taken from the company’s regulatory filing: 

For a fee model like this one, there are two ways that an advisor fee can be calculated. 

In this case, the advisor’s Part 2 brochure notes that “Once a new tier is reached, the entire portfolio balance (back to the first dollar) is charged at the new rate.” In other words, a $2 million portfolio would incur costs of $19,000 annually ($2,000,000 x 0.95%). 

A $4 million portfolio would fall into the 0.80% bracket, resulting in annual fees of $32,000 ($4,000,000 x 0.80%). 

Some advisors, however, will apply a “blended” calculation that charges different fees for dollars that fall into different tiers. Under this model, fees for a $2 million portfolio would be calculated as: 

  • 1.30% x First $1,000,000 = $13,000
  • 1.05% x Next $500,000 = $5,250
  • 0.95% x Next $500,000 = $4,750
  • Total Annual Fees = $23,000, or a “blended” rate of 1.15%. 

Again, a good fiduciary advisor will be straightforward about how their fees are calculated. An advisor who is not honest and forthcoming regarding fees is not an advisor you want to work with. 

Industry Averages

The table above is just one example of a pricing model. 

While there is a range of “acceptable” fees depending on the complexity of your financial situation and the services provided, the following rules of thumb can be applied: 

  • $500,000 Portfolio: 1.10% to 1.50% of AUM
  • $1 Million Portfolio: 0.90% to 1.10% of AUM
  • $2 Million Portfolio: 0.80% to 0.90% of AUM
  • $5 Million Portfolio: 0.70% to 0.80% of AUM 
Our Advisor Match tool can connect you with a vetted fiduciary advisor who charges reasonable fees and offers a free discovery call.

Alternative Pricing Models

The AUM model shown above is the most commonly used in the industry. However, some advisors offer alternative compensation models. These can include: 

  • Flat Fee: Some advisors will charge a flat fee, billed on a monthly, quarterly, or annual basis. While this is a different model, the bottom line fee is typically similar to what an investor would pay under an AUM model. 
  • Hourly Rate: Some advisors structure fees under a model more similar to law firms, billing clients for hours worked on their account. A typical hourly rate charged by an advisor can range from $150 to $450. 
  • One Time Financial Plan: Some advisors will offer limited scope engagements that involve creating a one time financial plan without ongoing management or support. Inmost cases, you’ll pay somewhere between $2,000 and $6,000 for the plan. 
  • Advice Only: Under this model, an advisor will not actively manage your money. Rather, they simply provide advice – and then it’s up to you to implement their recommendations (or not). Many Advice Only financial advisors charge a flat monthly or hourly fee.  

Important Considerations

Whenever considering fees for a service, it is important to understand everything that is included. 

Under a typical AUM-based fee model, clients can expect to receive comprehensive investment management and financial planning services. That can include asset allocation services, as well as tax planning, assistance with insurance and estate planning needs, cash flow analysis, and other advisory services.

It’s also important to note that most advisor fees are negotiable. Many advisors indicate this in regulatory filings, as a caveat to the “typical” fees presented. 

Need Help Finding An Advisor?

Our free Advisor Match tool can connect you with one or more vetted, fiduciary advisors with experience and expertise serving clients with your particular needs. The survey takes less than two minute to complete. Your first meeting with any advisor is always free, and you have zero cost or obligation.  

Click Our Map Below To Find A Financial Advisor In Your State

Get matched with a financial advisor who suits your needs.

WealthChannel will match you with a vetted fiduciary financial advisor from our network. Based on your responses about your retirement and investing goals, we will connect you with up to three advisors. There is no cost or obligation to work with any advisors presented to you, and your first meeting will always be free. 

Copyright © 2022–2024 WealthChannel. All rights reserved.