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How Much It Costs to Hire a Financial Advisor

By: David Bach  |  Last Updated: January 15, 2021
Financial Expert & 10x New York Times Bestseller
IN THIS ARTICLEAll the different ways financial advisors get paid
Traditional advisor fees vs. virtual advisor fees vs. robo-advisors fees
Fee-only vs. fee-based
Why it’s crucial to understand how your financial advisor is paid
The hidden costs of working with a financial advisor
How to minimize financial advisor fees
Choosing the right financial advisor

If you think hiring a financial advisor is out of the question because you don’t make enough money, you’re not alone. It’s a common misconception that you have to be rich to work with a professional. And there’s a good reason many people think this way: Until recently, financial services companies have been designed to work with people who have a lot of money — usually hundreds of thousands of dollars in investable assets.  

Thanks to technology, though, financial planning is starting to become more accessible — and hiring a professional to help with your money may be more affordable than you think. 

Below, we’re going to dive into exactly how financial advisors get paid and how much it’ll cost you to work with one. 

All the different ways financial advisors get paid

Let’s start by going over all of the different ways professionals can be paid for giving financial advice. After all, an advisor’s fee structure influences how much it’ll cost you to work with them. 

Here are five common fee structures to understand:

1. Percentage of assets under management (AUM)

Many advisors will charge you based on how many assets they manage for you. If you’re working with a traditional, in-person advisor, expect to pay 1% of AUM — though, the more assets you have, the lower the percentage tends to be. 

For example, take a look at the chart below, which shows annual advisor fees for one of the largest RIA’s in America. You’ll notice that, the more assets being managed, the lower the rate:

Assets Annual Fee
$0 – $400,000 1.75% on the first $400,000
$400,001 – $750,000 1.25% on the next $350,000
$750,001 – $1,000,000 1.00% on the next $250,000
$1,000,001 – $3,000,000 0.75% on the next $2,000,000
$3,000,001 – $10,000,000 0.60% on the next $7,000,000
$10,000,001 – $25,000,000 0.50% on the next $15,000,000
$25,000,000 + Negotiable

Using this fee structure, here’s how much you’d pay per year for a traditional financial advisor for various account sizes:

  • $50,000 account: Assuming an annual fee of 1.75%, you’ll pay $875 a year
  • $100,000 account: Assuming an annual fee of 1.75%, you’ll pay $1,750 a year
  • $500,000 account: Assuming an annual fee of 1.25%, you’ll pay $6,250 a year
  • $1 million account: Assuming an annual fee of 1.00%, you’ll pay $10,000 a year

Note that if you’re working with a virtual financial advisor (this is similar to working with a traditional advisor — you just communicate through video chats, email or phone) and they operate under this fee structure, it may be cheaper.

Vanguard, for example, charges an annual fee between 0.05% and 0.30%  for its online financial planning services. The fee depends on your assets under management. Here’s its annual fee schedule:

Fee Managed Assets
0.30% On assets up to $5 million
0.20% On assets above $5 million and up to $10 million
0.10% On assets above $10 million and up to $25 million
0.05% On assets above $25 million

That means, if you have $50,000 worth of assets under management (Vanguards account minimum), you’ll owe $150 a year. For a $100,000 account, you’ll owe $300, and for a $1 million account, $3,000. 

Personal Capital, which also offers online financial planning services, charges an AUM fee between 0.49% and 0.89%. Here’s its annual fee schedule:

For investment services and wealth management clients:

Fee Managed Assets
0.89% On assets up to $1 million

For private clients:

Fee Managed Assets
0.79% On assets up to $3 million
0.69% On assets above $3 million and up to $5 million
0.59% On assets above $5 million and up to $10 million
0.49% On assets above $10 million

Many robo-advisors also follow the AUM model, though the management fees are much lower: between 0.25% and 0.50%, and some don’t charge a fee at all. The reason they’re cheaper is because everything is done online. You’re not working face-to-face with a professional — a robo-advisor is simply using an algorithm to help you build an investment portfolio based on your goals and risk profile and then rebalance it when necessary.

Here’s how much some of the most popular robo-advisors charge:

  • Betterment0.25% per year on your invested balance (no account minimum)
  • Wealthfront0.25% per year on your invested balance ($500 account minimum)
  • Sofi0% per year on your invested balance (no account minimum)
  • TD Ameritrade0.30% per year on your invested balance ($500 account minimum)

Assuming a 0.25% – 0.50% fee, here’s how much you’d pay per year for a robo-advisor managing a:

  • $10,000 account: $25 – $50
  • $50,000 account: $125 – $250
  • $100,000 account: $250 – $500
  • $1 million account: $2,500 – $5,000

2. Flat fee (retainer)

This is a set monthly or annual fee, which can be anywhere between $1,000 and $8,000, depending on what type of advisor you’re working with and how complicated your financial situation is.

Again, a virtual advisor will likely cost less than working with a traditional, in-person advisor. Facet Wealth, which offers virtual financial advising from certified financial planners, follows this fee structure and charges between $1,200 and $6,000 a year, depending on the complexity of the client’s finances.

3. Flat fee per plan

Some advisors will charge a flat fee for creating a personalized plan for you. These typically cost between $1,000 and $3,000. You won’t receive any ongoing advice — just the plan. 

This could make sense if you want to pay a one-time fee for a comprehensive plan and don’t think you’ll need a professional to help keep you on track. Of course, this only makes sense if it’s going to be significantly less expensive than paying for an advisor who provides a plan and will work with you consistently throughout the year. If the price difference isn’t significant, it’s probably worth it to work with a traditional or virtual advisor who provides ongoing advice in addition to a financial plan.

4. Hourly fee

This fee structure is just as it sounds: You’ll be charged by the hour, which could be anywhere from $100 to $400. 

If you go this route, you pay for the time you need. You won’t get ongoing advice, like an advisor charging an AUM fee or flat fee would provide, but you can ask any money-related questions about your financial situation and investment portfolio.

Betterment offers these one-time meetings. The company charges between $299 and $399 for a 60-minute phone call with one of their certified financial planners to discuss your general financial situation, college planning, marriage planning or retirement planning.

5. Commissions

With commission-based advice, your advisor can make money whenever they sell you certain securities, annuities or other insurance products — and their earnings, which can be anywhere from 1-6% of your investment, come straight out of your wallet.  

This model is how the industry started, but most financial advisors have now moved away from this form of payment due to the conflict of interest it can create when giving advice. Most advisors who are paid on commissions today are known as “hybrid advisors” and can earn both commissions on products they recommend and collect fees directly from their clients. 

If you hire a hybrid advisor, it’s very important that you understand how your advisor is getting paid on each type of investment they recommended. 

Traditional advisor fees vs. virtual advisor fees vs. robo-advisors fees

As you probably picked up on, the type of advisor you work with can significantly impact cost. Here are the three main types, in order of least to most expensive:

  1. Robo-advisor. Expect low annual management fees (between 0.25% and 0.50%), and some don’t charge a fee at all. 
  2. Virtual financial advisor. Expect to pay a percentage of your assets or a flat or hourly fee. It’ll cost you more than a robo-advisor but less than a traditional advisor. 
  3. Traditional financial advisor. Expect to pay between 1% to 2% of your assets under management, though some may charge a flat fee or hourly fee. Keep in mind that most traditional advisors require a high minimum balance.

The price discrepancy can be explained by what you’re getting from each service.

Robo-advisors, the simplest type of financial advisor out there, primarily help with your investments. Using an algorithm, robo-advisors build a diversified portfolio for you based on your risk profile, money goals and unpredictable forces like market volatility and asset class performance. They also automatically rebalance your portfolio as you get closer to your money goals.

This is a good option if you just need help choosing and managing your investments and don’t want to spend too much money. 

A traditional financial advisor is going to provide you more than just automated portfolio management — they’ll create a comprehensive and individually tailored financial plan for you, and can advise you on everything personal finance-related, from how to create a budget and plan for retirement to what type of insurance to buy. You’re paying more, but getting face-to-face, personalized advice from a professional.

Finally, the “in-between” option is a virtual financial advisor. You’ll get access to a human financial advisor, but will work with them online (through video chats, email or phone). It’s similar to working with a traditional advisor, but everything happens online, which is why it’s cheaper.

Fee-only vs. fee-based

These terms are important to understand, and while they sound similar, they mean two very different things. 

A fee-only advisor doesn’t earn commissions. They get paid by charging an AUM fee or a flat fee. A fee-based advisor, on the other hand, charges a fee but can also earn commissions if they sell you certain financial products.

It’s smart to work with a fee-only advisor, as there’s less potential for conflict of interest.

Why it’s crucial to understand how your financial advisor is paid

When you’re looking at prospective financial advisors, you want to be clear on how they charge their clients. You can tell a lot about your financial advisor based on their fee structure. If they’re a “fee-only” advisor they cannot earn commissions, meaning they’re not incentivized to sell you certain products and are truly in the advice-business. If your advisor is earning commissions, they’re in the sales business in some capacity.

Ask prospective advisors: “How do you get paid?” “Are you a fee-only advisor, or fee-based?” “Do you earn commissions?”

You can also look at the Form ADV. This is a public disclosure form that every registered investment advisor must provide. You can find it on the SECs IAPD site or on the advisor’s website. The form will give you more information on what services they provide, the fees they charge and whether they have any other affiliations (like a brokerage business on the side, for example).

Before you hire anyone, you can ask them to put in writing what they charge so that you know exactly what it’s going to cost you to hire them. Again, it’s smart to work with a fee-only professional.

The hidden costs of working with a financial advisor

Whether you’re working with a robo-advisor or a human advisor, chances are you’ll owe more than just the flat fee or AUM fee that they charge. That’s because when you invest in mutual funds and ETFs, you’re charged what’s called an expense ratio to cover the fund’s operating costs.

If you’re working with a robo-advisor, most will invest your money in low-cost funds with expense ratios under 0.10%, but that’s something you’ll want to look into. If you’re working with an advisor, ask them to explain the expense ratio of the fund you’re invested in and any other investment costs you’re paying. After all, these fees vary widely and can exceed 1%, which, over time, can add up tremendously.

How to minimize financial advisor fees

When hiring a professional to help manage your money, you don’t want to be super cheap, but you also don’t have to pay for more advice than you need.

If all you need is help with your investments, start with a robo-advisor, which also typically provides access to helpful financial planning tools, like retirement calculators or budgeting tools that help you plan for big purchases. It’ll save you a ton of money and you can always consider hiring a human advisor later on if your financial situation ever becomes more complex. 

If you want to work with an actual person, but your budget is tight, start with a one-time meeting with an advisor who charges by the hour. You may only need the one meeting to feel like you’re in a good place financially. Or, maybe you’ll realize this is an investment that will pay off significantly and decide to work with an advisor consistently. If that’s the case, you may be able to keep the annual cost down by working with a virtual advisor. 

Finally, you can always negotiate the price with a prospective advisor. Especially if you have a couple in mind who you think would be a good fit, try negotiating with them all and see if any of them will knock down their price.

Choosing the right financial advisor

The type of advisor you settle on also depends on your budget and net worth.

If you’re a new investor and need help getting started, a robo-advisor might be enough for now. Today, there are tons of robo-advisors to choose from. When comparing different companies, it’s important to understand a few things:

  • Is there a minimum balance required to invest? Most robo-advisors let you start investing with $500 or less, but others require more. 
  • What is the management fee? Again, this should be between 0.25% and 0.50%, though some don’t charge a fee at all. 
  • What are the investment options? Most robo-advisors offer between five and 10 portfolio choices based on risk tolerance (they’ll range from conservative to aggressive). The more options, the better.
  • What types of accounts will the robo-advisor manage? Typically, a robo-advisor will manage individual retirement accounts (Roth, traditional and SEP IRAs) and taxable accounts. Some will also manage your 401(k) and trusts.

To help you narrow your search, check out our top-recommended robo-advisors

If you want advice beyond investing — say you’re planning to have a family and don’t know how to prioritize short-term expenses with long-term goals, or maybe you have questions about picking employee benefits or tax planning or estate planning — you’ll probably want to work with a human advisor.

If you choose to go the human advisor route, the next question you need to ask yourself is: Do I want to work with a virtual or in-person advisor? This decision may come down to your net worth. If you don’t have a ton of assets, you may not qualify to work with a traditional financial advisor, but could afford to work with a virtual advisor. If you have the money, is it important to be able to meet with someone in-person, in their office? Or are you fine conducting meetings online? 

Regardless of your decision, when it comes down to finding a great virtual advisor or traditional advisor to work with, you’ll need to spend time researching your options. Start by looking up advisors in your area using The Financial Planning Association’s website, The National Association of Personal Financial Advisors’ website and The Certified Financial Planner Board of Standards’ website.

For more information, read Finishrich.com‘s complete guide to choosing a financial advisor.

Read next: Robo-Advisors vs. Financial Advisors: How to Know Which One is Right For You