Building an emergency fund. Saving for retirement. Investing in stocks.
When it comes to meeting our financial goals, a little advice can go a long way. That’s why many people ask financial advisors for help in managing their money.
It could make all the difference for a professional to give you insights about how many months’ worth of expenses you should have in an emergency account, how much you can afford to deposit into your IRA right now, and which stocks you should invest in relative to how much risk you want to take.
Here’s the catch, though: It costs money to hire a financial planner. When saving money is our goal, hiring an advisor can almost feel like taking two steps forward, one step back.
Is there such a thing as free financial advice?
Let’s dive into the costs of using a financial advisor. The three main options are a human advisor, a robo-advisor, and a complimentary financial planner.
The Costs of a Human Financial Advisor
There’s no cut-and-dry answer to how much you’ll pay to hire a financial advisor. An advisor may use one or multiple methods to charge clients, such as:
When you pay a monthly, quarterly, or annual retainer, you pay a fixed fee to an advisor who manages your comprehensive financial plan.
Some people prefer paying a retainer fee because they believe it sets up advisors to be more trustworthy. Planners who aren’t trying to sell you products or earn a commission might be more objective.
Imagine walking into a sporting goods store. If you know the salesman is earning a commission on his sales, are you a little worried he’s going to push the $500 tent when a tent priced at $150 will meet your needs just fine? Many companies’ retainer fees differ depending on how many people are in your family.
Retainers and flat fees are both fixed-rate payment structures that eliminate the commission-based worry of upcharges. So what’s the difference between the two?
A retainer covers the cost of an all-inclusive financial plan, while flat fees apply to individual services and projects, such as managing a retirement account or helping you plan what to do with your estate once you pass away.
With a retainer, an advisor is very hands-on in how they manage your account because the relationship is designed to be long-term. When you pay a flat fee for a specific service, however, the advisor is tenured a project basis.
Flat fees generally cost less than retainers, because the scope of what the advisor does is limited.
Paying hourly for a service is a common alternative to paying a flat fee. Many financial advisors charge an hourly rate for consulting sessions.
Advisors’ hourly rates can vary depending on what project you want them to complete and can vary still further if your situation is more complicated than the average Joe’s. Some clients prefer to pay by the hour so that they can easily control how they’re spending their money.
However, if you don’t discuss your expectations with the advisor beforehand you could end up overspending. Financial planners who charge retainer fees, flat fees or hourly rates are known as “fee-only advisors.”
Some advisors earn a commission when they sell certain investments.
For example, let’s say you want to invest $1,000. Your advisor recommends you invest in a fund that charges a 3% commission. That means $30 of that $1,000 will go to your advisor as compensation. External companies set the commission rates, but you’re the one paying the commission.
Some people are uncomfortable paying commission because they’re worried their advisors will act in their own interest rather than the clients. On the plus side, sometimes advisors who charge commission offer more products and services.
Many advisors earn money through more than one of these payment methods. For example, they may charge an hourly rate and earn commission selling the client’s mutual funds. These planners are known as “fee-based advisors.”
If you decide to hire an advisor, you might hear the terms “fee-only” and “fee-based” thrown around, and it’s important to know the difference.
Money isn’t the only cost of hiring a financial advisor—you’ll also spend time with your planner.
Maybe you want to set up an hour-long consultation session with your advisor. Or you could meet up to discuss your comprehensive financial plan once they’ve finished putting it together.
If you have an ongoing relationship with an advisor who actively manages your finances, they may want to have monthly or quarterly phone chats.
They’ll probably check in on you when you’re going through major life and/or financial changes and may even want you to fill out occasional surveys about your financial goals.
The Costs That Come With a Robo-advisor
Some people prefer a robo-advisor or automated advisor to a human financial planner. When you sign up for a robo-advisor, the program asks you questions about your finances and goals, then sets you up with an account to manage your money and make investments.
People generally like using robo-advisors because the process is pretty hands-off, and it costs significantly less money than going through a human advisor. Many automatic advisors offer access to an online financial planner, so you can still talk to someone if you have in-depth questions.
When you manage an investment account through a robo-advisor, it often charges a monthly maintenance fee of between 0.25% and 1% of your account balance. Certain companies charge a small dollar amount every month instead of a percentage.
Receive No-Cost Financial Advice With SoFi Invest
Now to answer the big question: “Does free financial advice exist?”
Thankfully, yes! When you sign up for SoFi Invest® you’ll have access to complimentary financial planners. You could speak with them about setting and meeting financial goals, then discuss how to pursue those goals.
With SoFi Invest you have the benefits of both a human and a robo-advisor. Real people can talk you through your goals, but you also have the option to invest with SoFi’s automated investing feature, saving you the time you would have spent talking with an advisor.
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