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How Much Do Financial Advisors Charge?

By Justin Pritchard, CFP®

Financial advisors can provide valuable guidance on some of life’s most important decisions. But costs are important, and it’s critical to get value out of any fees you pay (or any compensation your advisor receives).

In some cases, the amount you pay is well worth it. You might benefit from clarity on complicated topics, peace of mind, a robust plan for the future, and smart money management techniques. But in some cases, you pay too much.

So, here are some ways to evaluate the relationship you have with an advisor or financial planner.

How Much Am I Paying My Financial Advisor?

Understanding exactly how much you pay is the first step. If you’re not sure what you’re paying, it’s wise to ask (and double-check) how you pay for services.

Financial advisors get paid in several ways. You can categorize those methods broadly as:

  • Fee-only
  • Commissions
  • Fee-based

Fee-Only

Fee-only financial planners do not receive commissions for selling products. Instead, you pay flat fees for service, hourly charges, assets under management fees, or other types of flat fees.

Clear and transparent: Any costs should be disclosed to you clearly, and you typically get an invoice every time you pay fees. For example, you might get an invoice for an initial payment when you sign on with a financial planner. Alternatively, you might get quarterly invoices detailing charges that come out of your investment accounts if you hire an investment manager.

Typical costs: Costs for fee-only advisors are all over the board. That’s because different advisors serve different types of clients. Geography is a factor, and the level of services also affects how much you pay. Still, there is research on the most popular fee models from both Michael Kitces and Bob Veres. For example, the median (or middle of the range) costs are:

  • Financial plan: $2,500 to $3,000
  • Retainer: $4,000
  • Hourly: $250
  • Investment management: 1% on the first $1 million each year, with declining charges as account balances increase

That said, there are plenty of alternative models. For example, advisors might charge a flat-dollar fee for investment management instead of a percentage of assets under management (AUM). Others bill based on your net worth or income. Some advisors will do on-hour engagements, while others set fees starting at several thousand dollars per year.

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Commissions

Advisors who earn commissions get paid when you buy a product. That might happen when you invest in a mutual fund with a sales charge or when you buy an insurance product (like an annuity or a life insurance policy).

Again, the specifics can vary, but some of the most popular compensation models are below.

Mutual funds: With “load” funds, you often pay up to 5.75% on additions to the fund. Your advisor gets a portion of that sales charge, and they might also receive ongoing “trail” compensation of around 0.25% per year.

Annuities: Compensation is often baked into the product and invisible to you. As a result, it’s crucial to evaluate the features and internal costs when that information is available. Some annuities pay the agent 8% or more. Immediate annuities typically pay less.

Fee-Based

The term fee-based is often misunderstood, but it refers to an advisor who can earn fees or commissions. The amount you pay depends on the type of arrangement and the types of products the advisor uses. They might sell a product for a commission, or they might engage with you for a fee.

Is 1% Too Much to Pay a Financial Advisor?

Advisors who charge a 1% annual fee typically offer asset management. If you get additional services on top of investment management services, the fee might be worth it, but monitoring how much you’re paying and how much you’re getting is critical.

If your assets sit more or less idle in a retirement account and the advisor doesn’t actually do anything, 1% may be steep. But if the advisor provides value with retirement income planning, ongoing monitoring and adjustments, regular reviews and checkups, or answers to your big-picture financial questions (on topics beyond your investment accounts), the cost might be appropriate.

Is AUM the Right Model?

It’s worth considering whether or not paying a percentage of your assets makes sense. For example, you can pay flat fees as an alternative to AUM charges. That might make sense when you’re a DIY investor and you only need one-time advice, or when the flat-fee charges would amount to less than you’d pay for asset management (potentially combined with other services).

Your asset level can also be relevant. When you’re paying a 1% fee on a $50,000 account, that’s roughly $500 per year. If you get a substantial amount of help and face time with a skilled financial advisor, that could be a reasonably good deal. But when you pay 1% on $1 million (or more), that’s $10,000 per year. At that point, you need to be getting substantial value for the fee—or it might be worth asking about flat-fee arrangements.

What percentage do most financial advisors charge? The typical fee has held steady at roughly 1% on the first $1 million of assets each year. But some advisors charge less, and you might ask about a flat fee that equates to less than 1%. For example, if you have substantial assets primarily in retirement accounts, that might be an option.

Ultimately, you need to look at the amount that leaves your accounts each year and determine if you’re getting sufficient value.

How Much Does it Cost to See a Financial Advisor?

Most advisors offer a complimentary first meeting so you (and they) can figure out if they’re the right fit for your needs. Beyond that, you might expect to engage with the advisor or purchase a product. Hourly charges are often $250 or so, while deeper engagements can cost several thousand dollars. The compensation models above can serve as a guide to set your expectations.

Some advisors have one-time advice-only offerings at a moderate cost. Others want you to commit to a more substantial relationship. That might include up-front fees, as well as ongoing (monthly or quarterly) fees. Or, some require you to invest a certain amount to become a client. Again, it’s all over the board, and it ultimately depends on each advisor’s business model. There’s a decent chance that there’s an advisor out there for you—but it might take some legwork to find them.

How Much Does an Independent Financial Advisor Cost?

Independent financial planners can potentially cost less than advisors affiliated with large companies, but that’s not always the case. Advisors at well-known names often have to share a substantial portion of their revenue (the fees you pay or the commissions you generate). As a result, fees need to be high enough to spread the money around.

That said, independent financial advisors often know how much they’re worth, and they charge accordingly. They might have specialized skill sets, exceptional service models, and limited client openings, so they aren’t trying to be the lowest-cost provider.

Sticker shock? Sometimes it’s hard to tell who is earning more—an independent advisor or somebody selling products from a large company. Independent advisors might be more likely to fully disclose the costs you pay and their compensation. That can lead to sticker shock, but the amount they earn might not be substantially different (or higher) than earnings under less transparent compensation models. The main difference? They actually explain what you’re paying instead of letting you assume you’re getting something for a low cost.

How Do Financial Advisors Get Paid?

Commissions and fees are the primary ways that advisors get paid, but the waters can get murky. You might not ever see those charges, and financial companies can pay additional forms of indirect compensation.

Commissions: Again, an advisor gets commissions by selling products that pay out commissions. You might or might not see those commissions detailed on a statement.

Fees: Advisors can charge hourly fees, flat fees, or use other arrangements. Those fees are typically disclosed up front, and you should get an invoice that details the fee before paying.

Incentives: For example, after selling a certain volume of product, an advisor might qualify for a vacation or receive other things of value that are not directly tied to your account. However, those incentives can affect how an advisor handles your account.

Other: Other forms of compensation can get complicated and hard to track. You’re almost certainly paying anybody who works with you—one way or another. For example:

  • An advisor who sells a substantial amount of a vendor’s product might get access to funds for hosting client events (renting a venue and catering for Client Appreciation Night, for example).
  • Advisors might get “soft dollar” compensation like access to research and other services free of charge by working with certain vendors.
  • Other creative forms of compensation exist.

How Much Should a Financial Advisor Cost?

This is the big question, and there might not be a clear answer. A financial advisor needs to provide value for the fees they charge and the compensation they receive. Unfortunately, that doesn’t always happen. But you can improve your chances by asking lots of questions about how the advisor works, how they charge, what you can expect from the relationship, and more.

As with any other service (changing your oil, cutting your hair, flying an airplane, or removing an appendix), managing your finances is probably something you could do yourself—if you wanted. But it takes time to gain expertise and complete tasks, and the consequences of missteps can be significant. So, if you choose to hire somebody to help, the value depends, in part, on what you gain from the arrangement.