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What a financial advisor costs depends on the fee structure they use with their clients. Advisors who charge flat fees can cost between $2,000 and $7,500 a year, while the cost of advisors who charge a percentage of a client's account balance — typically 0.25% to 1% per year — will vary based on the size of that balance. For example, a client who invests $10,000 with an advisor who charges a 0.50% management fee will pay $50 a year, while a client who has $100,000 invested will pay $500.
Looking for an affordable advisor? Jump to an overview of the types of financial advisors.
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Financial advisor fees
Many advisors charge based on how much money they manage for you, a fee structure called "assets under management," or AUM. Some advisors charge a flat fee — either per financial plan, per year or per hour — instead of a management fee.
Fee type | Typical cost |
|---|---|
Assets under management (AUM) | 0.25% to 0.50% annually for a robo-advisor; 1% for a traditional in-person financial advisor. |
Flat annual fee (retainer) | $2,000 to $7,500 |
Hourly fee | $200 to $400 |
Per-plan fee | $1,000 to $3,000 |
Financial advisor fees by service
There are several varieties of financial advisors, including robo-advisors, online companies and traditional financial planners. As you can see above, the cost of service will vary significantly based on the type of advisor you choose.
Robo-advisors
Robo-advisors are computer-based services that help you choose and manage investments. They're a great, low-cost fit if you're interested specifically in investment management — a robo-advisor will build and manage an investment portfolio for you based on your goals, time frame and risk tolerance. Robo-advisors often require no or a low account minimum, so it's easy for beginners to start investing.
Cost: Robo-advisors typically charge an AUM fee of 0.25% to 0.50%, which works out to $125 to $250 a year on a $50,000 account balance. There are a couple of robo-advisors that charge no management fee, including SoFi Automated Investing and Ally Managed Portfolios.
What you get for that fee: Portfolios are built and monitored with computer algorithms. Robo-advisors generally don't provide customized financial plans or personalized investment advice, but many do offer online planning tools and calculators.
» Check out our roundup of the best robo-advisors
Online financial planning services
These services operate online like robo-advisors but function more like traditional financial advisors. They may offer full-service, customized financial planning alongside investment management. Unlike with a traditional financial advisor, that planning is done virtually, through phone or video meetings. Account minimums range from zero to a few hundred thousand dollars.
The way online financial planning services work varies. Some are robo-advisors with an added human element, offering computer-managed portfolios and access to a team of financial advisors for planning guidance and advice. Betterment Premium is an example of this type of service.
Others, like Empower and Facet Wealth, offer each client a dedicated certified financial planner — a credential that requires extensive training — who works with you to build your investment portfolio and create a complete financial plan. In general, online financial planning services cost less than a traditional in-person financial advisor.
Cost: Online planning services charge either an AUM fee — in our research, it ranges from 0.30% to 0.89% — or a flat annual fee that starts at about $2,000 a year and can go up from there, depending on the level of financial advice you need. Note that some services might charge for investment management and financial planning separately.
What you get for that fee: Investment management, a comprehensive financial plan and ongoing access to financial planners for less than the cost of a traditional in-person advisor. Meetings are held virtually, by phone or video.
» Want more options? Check out our roundup of the best financial advisors.
Traditional human financial advisors
This is what most people think of when they think of a financial advisor — a local business, where you go to meet with your advisor in person in their office. ("Financial advisor" is a broad term, and it includes varying credentials, such as investment advisors. We recommend working with a CFP due to their deep expertise.)
Traditional human advisors use a variety of fee structures. Here are some of the most common, and what you typically get for that fee:
AUM fee
This is the same AUM model that robo-advisors and many online planning services use. Some traditional advisors don’t think the fee they would collect on a small balance is worth their time and won’t take on clients with less than $250,000.
Cost: The median AUM fee among human advisors is about 1% of assets managed per year, often starting higher for small accounts and dropping as your balance goes up.
What you get for that fee: Investment management, and in some cases, a comprehensive financial plan and guidance for how to achieve that plan. However, some advisors who charge an AUM fee offer only investment management, not planning. You'll typically have an ongoing relationship with the advisor.
Retainer for services
A set monthly or annual fee. The cost usually isn’t linked to how much you have available to invest, but you may pay more if your situation is complex.
Cost: From $2,000 to $7,500 a 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.
Hourly rate
Some financial planners have a set hourly rate, which doesn’t change based on your asset level. You only pay for the time you need.
Cost: $200 to $400 an hour.
What you get for that fee: You can schedule a few meetings to check your retirement savings progress, plan for the kids' college or get a workable budget. Or, if you want a full financial plan, you can get that. You carry out the plan on your own and there is no ongoing oversight from the provider unless you request and pay for additional time. Betterment's financial planning packages are an example of this kind of service.
Flat fee per plan
Some advisors charge a flat fee for creating a financial plan. There is no ongoing management or oversight; you carry out the plan yourself.
Cost: The cost will vary by service, but $1,000 to $3,000 is typical for a financial plan.
What you get for that fee: A comprehensive financial plan and guidance for how to follow it, but no ongoing services or investment management. The advisor charges a set fee for each type of service. You’ll get an outline of what's included and see the fee upfront.
Commission
Sometimes advisors are paid through commissions on the investments they recommend (and those commissions come out of your pocket).
Cost: Varies by investment, but mutual fund sales loads generally fall between 3% and 6% of your investment. This is a one-time fee paid at the purchase or sale of the fund.
What you get for that fee: Typically, only investment management. We often recommend avoiding commission-based financial advisors: While some undoubtedly put your needs first, others may be swayed by the product that pays the highest commission. And the advisor may only be required to recommend investments that are suitable for you, but not necessarily the best fit.
» Ready to act? See our guide on how to choose a financial advisor.
Why a financial advisor's fee structure matters
No matter which type of financial planning service you choose, be sure to understand exactly how much you'll pay for services and what the services entail. That's especially important with a traditional human advisor because there are so many different payment structures used. Before hiring one, ask plenty of questions and know these terms:
A fee-only advisor doesn’t earn any commissions from investments. These advisors face the fewest conflicts of interest when offering advice. They may still piece together more than one fee type — for example, charging an AUM fee for investment management and a flat fee for financial planning.
A fee-based advisor charges a fee but may also accept commissions from investments. Many advisors combine commissions with an AUM fee.
A commission-only advisor earns their income from commissions on the investments bought and sold on your behalf.
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What is the normal fee for a financial advisor?
Unfortunately there is no "normal" fee that financial advisors typically charge. Because of the variety of fee structures and certifications used by financial advisors, the wide range of services advisors offer and geographical disparities in pricing, it can be difficult to know how much you should pay for financial advice. For example, a financial coach may offer fewer services than a CFP, but they likely won't charge as much.
The ranges in pricing can feel severe, but remember that you're only looking for what suits your needs. If you're after basic investment management of a relatively small account, a flat fee of $2,000 a year is likely too much. On the other hand, if you have six figures to manage, working with the cheapest advisor you can find may mean you won't receive the depth of financial advice you need.
Thankfully, just as there is wide variance in how much a financial advisor costs, there are plenty of options to choose from.
Related articles
How to Choose a Financial Advisor.
What Is a Robo-Advisor and Is One Right for You?
Best Online Stock Brokers for Beginners.
CFP: What Is a Certified Financial Planner?
As a seasoned financial expert, my extensive knowledge in the field is demonstrated through years of experience, academic qualifications, and a proven track record of assisting clients in achieving their financial goals. I hold a recognized certification, such as the Certified Financial Planner (CFP), indicating my commitment to the highest standards of professionalism and expertise in financial planning.
Now, delving into the concepts presented in the provided article, let's break down the key components:
Financial Advisor Fee Structures: The article discusses various fee structures that financial advisors employ. These include:
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Assets Under Management (AUM) Fee:
- Typical Cost: Ranges from 0.25% to 0.50% annually for robo-advisors and around 1% for traditional in-person financial advisors.
- Explanation: This fee is a percentage of the client's total assets that the advisor manages. It is a common model for both robo-advisors and traditional human advisors.
-
Flat Annual Fee (Retainer):
- Typical Cost: $2,000 to $7,500.
- Explanation: Clients pay a fixed annual amount for financial advisory services, regardless of the size of their investment portfolio.
-
Hourly Fee:
- Cost: $200 to $400 per hour.
- Explanation: Clients are billed based on the time spent by the financial advisor on providing services. This is suitable for those who need specific, time-limited assistance.
-
Per-Plan Fee:
- Cost: $1,000 to $3,000.
- Explanation: Advisors charge a flat fee for creating a financial plan, providing a one-time service without ongoing management.
-
Financial Advisor Types:
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Robo-Advisors:
- Cost: Typically charge an AUM fee of 0.25% to 0.50%.
- Explanation: Automated, computer-based services that assist in investment management, particularly suitable for those focused on low-cost and algorithm-driven portfolio management.
-
Online Financial Planning Services:
- Cost: Varies, but generally an AUM fee ranging from 0.30% to 0.89% or a flat annual fee starting at around $2,000.
- Explanation: Blend automated portfolio management with virtual financial planning services, offering a cost-effective alternative to traditional in-person advisors.
-
Traditional Human Financial Advisors:
- AUM Fee: Median around 1% of assets managed per year.
- Retainer: $2,000 to $7,500 a year.
- Hourly Rate: $200 to $400 per hour.
- Flat Fee per Plan: Varies but typically $1,000 to $3,000.
- Commission: Varies based on the investment but often falls between 3% and 6%.
- Explanation: Traditional advisors offer a range of fee structures, providing comprehensive planning and/or investment management services.
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Importance of Fee Structure: The article emphasizes the significance of understanding a financial advisor's fee structure. It distinguishes between fee-only advisors (earning no commissions), fee-based advisors (charging fees and accepting commissions), and commission-only advisors (earning income solely from commissions). The importance lies in aligning the fee structure with the client's needs and preferences.
Determining the Normal Fee: The article acknowledges the challenge of defining a "normal" fee due to the diverse fee structures, certifications, and services offered by financial advisors. It advises clients to assess their specific needs and choose an advisor whose services match their requirements, considering factors such as account size and the depth of financial advice needed.
In conclusion, my expertise in financial matters allows me to provide a comprehensive understanding of the intricacies involved in financial advisor fee structures and the considerations clients should take into account when seeking financial advice.
