Investing can be complicated and intimidating, so people often look to hire a financial advisor to help figure out the best solutions to meet long-term financial goals. But before they hire an advisor, investors need to know what these advisory services may cost.
However, there is no single, straightforward answer to how much a financial advisor may cost because the average fee for a professional advisor varies, often because of their degree of professional experience and the amount of assets they’re managing for each client. Nonetheless, investors should do their homework to understand financial advisor fees before hiring a professional.
Average Cost of a Financial Advisor
The average cost of a financial advisor can vary, depending on the services offered and the client’s needs.
Traditionally, financial advisors charge a certain percentage – usually about 1% – of a client’s portfolio value, known as assets under management (AUM). For example, a financial advisor would charge $100 to a client with a $10,000 portfolio, while a client with a $100,000 portfolio may be charged $1,000.
However, this fee is often charged on a sliding scale, meaning the more valuable a portfolio is, the lower the fee percentage the financial advisor would charge. An advisor may charge a client with a $10 million portfolio a lower fee than a client with a $1 million portfolio.
This fee, the percentage of assets under management charged by an advisor, is generally lower for robo and online advisors than traditional financial advisors, which can average about 0.25% to 0.30% of AUM.
Instead of or in addition to an asset under management fee, some financial advisors may have other costs that investors should know. These can be for hourly charges, typically reserved for special planning and consulting, ranging from $130 to $300 per hour, depending on the advisor and the client’s needs.
Moreover, an advisor may charge a flat rate based on AUM rather than a percentage of AUM. Depending on a client’s portfolio size, these fees can range from $7,500 to $55,000. And some advisors charge an annual retainer fee, ranging from $6,000 to $11,000 a year.
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|Average Financial Advisor Fees|
|Fee Type||Average Cost|
|Percentage of Assets Under Management (AUM)||0.59% to 1.18%|
|Hourly Fees||$130 to $300|
|Flat Fees per AUM||$7,500 to $55,000|
|Annual Retainer Fee||$6,000 to $11,000|
Fee-Only Advisors vs Commission-Based Advisors
There are several things an investor should be aware of when it comes to financial advisors’ fee structures, including knowing the difference between fee-only advisors, fee-based advisors, and commission-based advisors.
Fee-only advisors earn money through the fees paid to them by clients, whether that’s a percentage of AUM or an hourly fee. Experts generally recommend fee-only advisors because investors don’t have to worry that the advisor is focused on selling them a product because it’ll give the advisor a nice commission. Many fee-only advisors are known as fiduciary financial advisors, meaning they are legally required to provide advice with their client’s best interests in mind.
In contrast, commission-based advisors earn money from commission on the investments bought and sold on a client’s behalf. For example, a financial advisor may earn commissions when a client invests in a particular financial product, like a mutual fund or annuity. Because the advisor is incentivized to get their clients to put money into these products, it may be in the advisor’s best interest and not the client’s.
A fee-based advisor combines the fee structures of fee-only and commission-based advisors. Fee-based advisors generally charge an AUM fee, a flat fee, or an hourly fee, but may also charge commissions.
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Financial Advisor Fees Based on Account Type
Robo Advisor Fees
Robo advisors typically charge an AUM fee of 0.89% or lower – depending on the company – which is less than traditional financial advisors. Moreover, some robo advisors, like SoFi Automated Investing, charge no management fees.
Robo advisors use computer algorithms to provide financial guidance and portfolio management for investors rather than management by humans. Robo advising can be ideal for investors looking for low financial advisor fees.
Additionally, robo advisors may benefit investors because they require a smaller minimum account size than most traditional financial advisors. A smaller minimum account size can be a good option for investors who are just beginning to invest and want to build up their portfolios.
Though the fees are lower than traditional firms, robo advisors generally don’t provide services that some investors may be looking for, like creating financial plans or personalized investment advice.
Online Financial Advisor Fees
Online financial advisors cost more than robo advisors but less than traditional advisors. The fees for online financial advisors can vary depending on the firm, ranging from 0.40% to 0.89% of AUM.
Online financial advisors operate like a combination of robo advisors and traditional, in-person advisors. Depending on the firm, these advisors may offer financial planning services and asset management conducted by humans rather than algorithms. These services are conducted virtually through phone and video meetings. Account minimums for online financial advisors can range from zero to a few hundred thousand dollars.
Traditional Advisor Fees
As mentioned above, the fee structures for traditional financial advisors can vary, depending on the firm and the client’s needs. These fees include fees that range from 0.59% to 1.18% of AUM, hourly rates, annual retainer costs, and commission fees.
When most people think of a financial advisor, they think of a traditional advisor where the client gets in-person services and specialized planning. These advisors can be for everyone, though their higher costs may make them more suitable for investors with more money and more complex financial goals.
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Tips On Minimizing Financial Advisor Fees
1. Look to online and robo advisors
As noted above, online and robo advisors can be an option that costs less than a full-service investment firm. These online options generally use a more self-directed or algorithmic approach, offering investment choices that can include individual stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other options. Because there is less human involvement, the fees are lower.
2. Negotiate with your advisor
Investors can talk to their financial advisor and ask if there are ways to lower their fees. Depending upon the advisor, they might charge less if the investor is willing to use fewer available services. Or, if the client has more assets than the advisor usually manages, the advisor might be willing to negotiate the fees.
3. Hire a novice advisor
Sometimes a newer advisor will charge lower fees as they are building up a client list. This person won’t have as much experience but may be willing to negotiate fees and dedicate a reasonable amount of time to a client’s portfolio.
There is no one cost that an investor can look to pay when using a financial advisor. It all depends on the type of services that a client requires and the fee structures a firm may offer. Because of this variability, you need to ask a potential financial advisor about fees to know exactly what you’re paying.
For an investing option with no SoFi management fee, SoFi Automated Investing offers a way to take the stress out of investing by helping you with the hard part: goal setting, rebalancing, and diversifying your money.
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