Financial Planning

How Much Does a Financial Advisor Cost?

By  Jacob Wade

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Hiring a financial advisor can be a great move to help you build a long-term investing strategy. Advisors can help you build an investment portfolio to meet your financial goals, as well as help you plan appropriately for retirement.

But how much does a financial advisor cost? And how do you make sure you are not paying too much?

Over the years, financial advisor fees have evolved as the industry has moved to a more transparent pricing structure. But there is still a lot of confusion on how financial advisors make money, and how much is a reasonable amount to pay.

We’ve put together this guide to walk you through the details of how financial advisors make money so that you can make an informed decision when deciding on who you hire and how you will pay for their services.

Before we talk about the different ways you can pay for a financial advisor, let’s review what an advisor can do for you and why hiring one can be a worthwhile investment.

What Does a Financial Advisor Do?

Though most people use a financial planner simply to invest for retirement, this is only a small part of what many advisors offer. Here’s a quick rundown of potential services a financial advisor may offer you:

  • Budgeting and money management
  • Debt management
  • Insurance planning
  • Retirement planning
  • Other investment planning
  • Inheritance planning
  • Estate planning
  • Tax planning

As you can see, financial advisors can help you with your entire financial picture, not just investing. As you start to plan for life’s bigger milestones, you should consider finding a financial advisor that specializes in those areas.

Finding the right advisor can help you minimize risk, maximize gains and take advantage of tax breaks while investing for your future. They can also help you protect your assets with the right kinds of insurance, and help you pass on your financial legacy with a proper estate plan.

Now that we know a financial advisor can help you build a plan for your entire financial life, let’s talk about how much you can expect to pay to work with a financial advisor.

How Much Does a Financial Advisor Cost?

The cost of hiring a financial advisor can vary significantly based upon the services provided. Paying a 1% fee on your assets managed by a financial advisor is quite common, but there are seven common ways financial advisors are compensated by clients, each with varying costs:

  1. Percentage of Assets Under Management (AUM)
  2. Commission-Based
  3. Subscription-Based (Annual or Monthly Fees)
  4. Percentage of Income
  5. Flat-Fee Plan
  6. Hourly Fee (with Retainer)
  7. One-Time Fee (Modular Pricing)

Let’s review each compensation model in greater detail to learn the costs you can expect to pay a financial advisor for their services.

1. Percentage of Assets Under Management (AUM)

This is the most common way that traditional financial advisors charge for their service. This is called the “assets under management “ or “AUM” model. The current industry standard is to charge anywhere from 0.50% – 2% of the assets being managed on an annual basis. Most advisors will fall somewhere around the 1% fee mark.

This means if you deposit $500,000 with a financial advisor, at a 1% fee, they will charge you $5,000 annually to handle your investments.

This model is an accepted industry standard, especially for those investing for retirement. This fee pays the advisor to invest your money for you based on your risk tolerance, goals, timelines and other factors of your financial plan.

Finding a full-service advisor who will manage your funds for under 1% is a bargain, while paying the 2% fee may cost you a large portion of your potential returns over time.

Best For – If you want a full-service advisor with no hidden fees, finding a good fee-only advisor who charges based on AUM may be a good fit.

2. Commission-Based

When a financial advisor is commission-based, they make commissions from selling you certain financial products (such as mutual funds and other securities). This model is becoming less and less popular, as there may be an inherent conflict of interest involved. There has been pushback against this mondel, as many clients have been sold financial products that they did not necessarily need, netting the advisor a hefty commission while the products underperformed.

An indicator that your advisor is commission-based is if they offer a financial product, such as a mutual fund, that has a “front-loaded” fee structure. This means if you invest $10,000 into a mutual fund with a 5.50% front-loaded fee, you will pay $550, and the remaining $9,450 is invested.

Some of these funds claim to outperform the stock market over time, but always research the historical performance and reviews of any fund before you choose to invest.

Best For – If you want to avoid annual fees and don’t mind paying for financial products (as long as you understand them), you may consider a commission-based financial advisor. 

3. Subscription-Based (Annual or Monthly Fees)

Some advisors don’t collect a fee based on the assets they are managing for you, but instead put together a subscription-like service, charging a monthly or annual fee for advisory services.

These services can range from $50 per month to $500 per month (or more), depending on the level of support needed.

Most of these subscription services charge a one-time cost to get started, then a monthly (or annual) fee for ongoing support.

Depending on the level of service you sign up for, there are typically “packages” that offer a limited amount of annual meetings, reviews and 1:1 time with your advisor. Typically, the more you pay, the more access and guidance you get from your advisor.

Best For – If you don’t have a large balance of investable assets but still want access to a licensed financial advisor, the subscription model may be a good fit.

4. Percentage of Income

A newer fee structure has emerged recently called the “percentage of income” model. Instead of charging a fee percentage of your total assets, these advisors are charging a percentage of your current income.

This fee is designed to help those who may have a decent income, but are at the beginning of their financial journey and don’t meet the minimum investment threshold for many traditional financial advisory firms (typically, $100,000 – $500,000).

Instead of paying 1% of assets under management, clients instead pay 1% if their annual income for financial advice. In this model, a $150k/yr earner would pay $1,500 per year for financial and investing advice.

Best For – If you don’t have a large balance of investable assets but still want access to a licensed financial advisor, the subscription model may be a good fit.

5. Flat-Fee Plan

Many financial advisors offer a flat-fee service, helping clients build a comprehensive financial plan, but not managing the clients investments. These services give clients money management and investing advice, which the clients then carry out themselves.

Flat fee services can range from $1,000 to $3,000 (or more), depending on the scope and detail of the financial plan provided.

Advisors will typically outline exactly what is included in this planning service, with different tiers for more comprehensive planning. Again, this is a one-time fee to create a detailed financial plan for your debt, goals, investments and more, but the financial advisors will not be managing your money. It is up to you to follow the details of the plan.

Best For – If you want a full-detail financial plan without the recurring cost of monthly or annual fees, and if you are confident in your ability to manage your money and investments yourself, you may want to consider a flat-fee financial plan.

TJ van Gerven CFP headshot

TJ van Gerven, CFP®

Modern Wealth Builders

Q: Why should I consider hiring a financial advisor with flat fee pricing?

TJ: While no type of fee model is perfect, the flat fee model is one of the most transparent and fair advisor-client compensation methods. It helps to remove the conflict of interest of “looking to gather your assets,” as well as a variety of conflicts around paying down debt vs. investing. With a flat fee model, you always know what you’re paying and what you’re paying for. It also allows you to work with an advisor regardless of your assets.

Q: Is there a scenario when a flat fee arrangement may not make sense for me?

TJ: A flat fee model may not make sense for you if you’re looking for a one-off engagement. In that case, you may be better served by an hourly advisor.

View TJ’s Profile on Wealthtender

6. Hourly Fee (with Retainer)

Some advisors work on an hourly basis, with prices ranging from $150 per hour to $400+ per hour. These prices do not change based on your total assets managed, so you are only paying for the time you need with the advisor.

Many of these hourly services come with an up-front retainer cost, buying a block of hours up front for the year for you to use when you want.

For example; if an advisor charges a $1,500 retainer fee at $150 an hour, you have 10 hours of planning services available to use throughout the year. Each additional hour would be billed at the normal hourly rate.

Some hourly financial advisors will give you full-service management of your investing portfolio (there may be additional fees for this), while others will only bill for 1:1 time and leave the money management and investing up to you (based on their guidance).

Best For – If you simply want access to a licensed advisor to answer questions and help you build a financial plan, paying for an hourly-based financial advisor may be a good fit.

Ryan Firth

Mercer Street Company

Q: When does it make sense for me to consider hiring a financial advisor who charges an hourly rate?

Ryan: Hourly (or time-based) advice is highly flexible. It tends to make sense for someone who can self-implement recommendations, someone who is hands-on when it comes to their personal finances. For example, if you’re looking for a second opinion on your investment portfolio, or just need one-off financial advice, then a time-based fee for service (i.e., “hourly”) might be just what you’re looking for. If you tend to delegate tasks, or want someone to manage your investments for you, then hourly advice might not be a good fit for you. One of the cool things about hourly planning is that there really aren’t any restrictions on the type of clients that an advisor can work with.

View Ryan’s Profile on Wealthtender

7. One-Time Fee (Modular Pricing)

Many financial advisors offer “a la carte” services, allowing you to choose the type of plan you want to focus on. These services include budget planning, retirement planning, insurance planning, 401(k) review and many other individual options.

These are typically billed as one-time fees, typically starting at $500. These are not a comprehensive financial plan for all of your goals, but focus on a specific area of need. Clients pay for the advice and plan, but it is on them to execute the details of the plan.

Best For – If you need help in a specific area and don’t want to fork over thousands for a comprehensive plan, consider paying a one-time fee for a specific planning session.

How to Choose a Financial Advisor

Now that you have the details of how most advisors charge for their services, here are a few things to review before choosing your financial advisor.

Decide Which Services You Need

Before hiring an advisor, determine what services you need from them. Whether it’s full-service investment management, or a plan focused on a specific area of your finances, put together a list of what you’d like help with before contacting an advisor.

You may also want to consider hiring a financial advisor who specializes in serving clients with particular needs or interests. For example, many XY Planning Network financial advisors are dedicated to a specific niche (e.g. business owners or educators).

Review Fee Structures

Once you have a list of what services you would like, review the fee structures offered by financial advisors. Finding a balance between the services you need and the cost of those services will help you narrow down the field of advisors you may want to work with.

If you are looking for a full-service advisor to manage all of your investments, consider searching among fee-based financial advisors. If you want to manage your money yourself, consider the flat fee and monthly subscription advisors for ongoing support.

Interview Multiple Advisors

Once you have chosen the services and fee structure you desire, it’s time to contact a few advisors and interview them. Here are a few questions to ask when interviewing a financial advisor:

  • What services do you provide?
  • What are all the ways you get paid? (fee transparency)
  • What is your investment strategy?
  • How do you measure investment performance?
  • How do we communicate about my plan?

Interview multiple advisors to get a feel for who you want to work with. A combination of fees, services and customer service will help you determine the best fit for your financial advice.

Note: These days, you don’t need to meet with just local advisors. Many advisors work nationwide as a virtual advisor, using Zoom calls, email and chat to stay in touch about your plan. 

Check Advisor Credentials

Once you find an advisor (or two) that you feel comfortable with, it’s always a good practice to check their credentials, such as the financial certifications they hold and the details of their firm. You can do this at the Investment Adviser Public Disclosure (IAPD) website

You can check both the individual and the firm to view their background and experience details, as well as any disciplinary action taken against them or their firm.

As licensed financial professionals, there is oversight into how financial advisors conduct business, so running a quick (free) check on them is recommended.

Find a Financial Advisor

You’ll find a growing list of financial advisors and financial planners in the Wealthtender Financial Advisor Directory. You can search based on the services they offer and the ways they are compensated to find those who may be a good fit for you.

Related Articles

FAQs: Financial Advisor Fees

Here are some common questions about financial advisor fees.

Are Financial Advisor Fees Tax Deductible?

Short answer: No.

Financial advisor fees are not currently tax deductible in the United States. There used to be deduction for advisor fees up until the Tax Cuts and Jobs act of 2018 was passed. This allowed you to deduct financial advisor fees as a miscellaneous itemized deduction.

That deduction is now gone, but investing can still give you tax deductions in certain kids of investment accounts. Your work 401(k) or a traditional IRA account allow you to invest pre-tax dollars. This means that the money invested in those accounts do not count as taxable income.

You can also still deduct investment interest charges as an itemized deduction, including interest paid on margin loans.

Jacob Wade I Heart Budgets

Jacob Wade

About the author:

Jacob Wade is the budgeting expert who started iHeartBudgets, a place where Millennials and young families come to learn EXACTLY how to build a budget that WORKS.

Jacob quit his job in 2018, sold his house and 95% of everything they owned to take off on an adventure of a lifetime and RV around the USA.

He is now on mission to spread the message of Financial Freedom around the country, and help others build a “Freedom Plan” of their own!

Also, he has a thing for Doritos…

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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