How Much Does a Financial Advisor Cost?

As you work toward your financial goals and prepare for retirement, you might be asking yourself how much does a financial advisor cost. The answer depends on various factors, as fee structures and rates differ from advisor to advisor. According to a 2023 report by Advisory HQ, financial advisors may charge a fixed fee ranging from $7,500 to $55,000 or an asset-based fee averaging around 1.02% of assets under management (AUM). These varying fee structures can make it challenging to determine what you’re paying and whether you’re getting good value for the services provided.

If you need help finding a financial advisor who serves your area, SmartAsset’s free tool can connect you with your advisor matches.

Breaking Down Financial Advisor Fee Structures

There are five main ways that registered investment advisors (RIAs) charge for their investment advisory services. The table below breaks them down:

Types of Financial Advisor Fee Structures

Advisors may charge one of these fees or a combination of them. Fee-only advisors earn money exclusively from fees paid by their clients. They don’t earn commissions or other types of compensation from selling certain financial products or trading specific securities. Fee-only advisors can still have potential conflicts of interest, though they must disclose them.

Fee-based advisors, on the other hand, earn money both from the fees their clients pay, as well as third-party commissions and other forms of compensation. This happens when an advisor is dually registered as a broker-dealer or insurance agent, allowing them to sell affiliated products, investments or policies for compensation. This can present a potential conflict of interest that needs to be disclosed, though fee-based advisors still abide by fiduciary duty.

How Much Do Financial Advisor Fees Typically Cost?

When it comes to financial advisor fees, most firms charge based on a percentage of assets under management (AUM) for ongoing portfolio management. According to the same 2023 report by Advisory HQ, the average financial advisor fee in 2023 was 1.02% for $1 million AUM, which adds up to $10,200 annually.

This is up slightly from past years when another 2018 report by RIA in a Box said that the average financial advisor fee is 0.95% of AUM, which for a $1 million account would amount to roughly $9,500 per year. Fees are often assessed quarterly, though, so your advisory fees may be divided up into fours.

Asset-based annual fees may decrease as the size of the account increases, ensuring that high-net-worth individuals are still paying a fair rate. However, this also means that fees will be higher for those with lower account values. The average AUM fee for a $50,000 account is 1.18%, or $590 a year, again according to Advisory HQ’s previously mentioned 2023 report.

Fixed fees and hourly fees typically apply to financial planning or consulting services, as well as special projects. Fixed fees typically range from $7,500 (for investments under $499,999) to $55,000 (for investments over $7.5 million), according to the 2023 Advisory HQ report. Hourly fees can be anywhere from $120 to $300 an hour, depending on the advisor and the complexity of the project.

How Much Do Financial Advisors Make Off Your Money?

The table below breaks down the average fee rates for the three most common financial advisor fee types:

Average Financial Advisor Fees by Type

One of the most popular financial advisor certifications is the Certified Financial Planner™ (CFP®) designation. These professionals specialize in many areas of financial planning, such as retirement, insurance, estate planning, taxes and more.

Other Financial Advisor Costs You May Encounter 

The financial advisor cost might not be all you pay when opening an account. In addition to paying the advisor, you’ll also be responsible for brokerage, custodial and other third-party fees. For instance, if a financial advisor uses mutual funds or exchange-traded funds (ETFs) in your account, you’ll have to pay costs associated with those funds in addition to the fee that you pay your advisor.

These costs can add up. A 1% mutual fund fee can cost a young investor as much as $590,000 over 40 years. When discussing fees with your financial advisor, you should be sure to ask about any additional costs you may incur.

Where to Find Info on Financial Advisor Fee Schedules

To figure out the financial advisor costs you may be charged, look at the firm’s Form ADV (SEC-filed paperwork). On this form, a firm must clearly note each fee type that it charges for its investment advisory services. Specifically, in Section 5, the firm must check off each type of fee that it charges clients for its investment advisory services.

In Part II of Form ADV (also called the firm’s brochure), the firm will provide greater detail on its fee rates and their applicable brackets. That includes information on whether the firm earns money in any way aside from client fees. The brochure will also include specifics on how the firm calculates fees.

Are Financial Advisors Worth Paying?

There are plenty of pros and cons to working with a financial advisor, especially depending on the type of service you’re looking for. For the most part, financial advisors offer you a breadth of experience to help protect and grow your assets. They can help with a number of things from investing to retirement and estate planning. If they can protect you from a significant loss or help your assets grow significantly then it is probably worth the cost.

If you’re uncertain about any of these activities when it comes to your money then a financial advisor may be worth their fees to you. A financial advisor can even grow with you as you have a new turning point in your life that requires a fresh financial perspective. For example, having a child changes your mindset.

The real key to making sure you feel like the fees of a financial advisor are worth it is whether the fees are fair or not. You don’t want to overpay for services and in many cases, you may want to only pay for results. Understanding and agreeing to payment terms is important to how worth it to you the cost is going to be.

Here are five common ways a financial advisor can add value to your finances:

• Customized advice: Financial advisors can provide personalized advice based on your financial situation. This can include creating a customized investment strategy, planning for large expenses like home purchases or children’s education, and adjusting your financial plan to life changes.
• Asset management: Advisors actively manage your investments, making adjustments based on market conditions and your evolving financial goals. This includes rebalancing portfolios to maintain a strategic asset allocation and risk level so that you could potentially increase returns and cut losses.
• Create a retirement plan: An advisor can help you calculate how much you need to save for retirement and develop a strategy to achieve those goals. They can also help you resolve complex retirement issues by creating a withdrawal strategy, optimizing Social Security benefits and managing a pension.
• Estate planning and risk management: A financial advisor could help plan your estate by advising on wills, trusts and tax strategies. Additionally, financial advisors can assess insurance needs to help you protect against unexpected emergencies.
• Regular financial check-ups and adjustments: An advisor can conduct regular reviews of your financial plan to make sure that it aligns with any life changes or financial shifts. This ongoing oversight helps catch and address potential issues early.

How to Make Sure That Financial Advisor Fees Are Fair

Before you agree to work with an advisor, make sure you understand the advisor’s fee structure and what services that fee includes. Some advisors may charge extra for certain services and programs. It shouldn’t be difficult for an advisor to explain how he or she is adding value to your accounts.

If an advisor gives a roundabout or elusive answer, steer clear. It’s a red flag if an advisor tells you not to worry about costs. Ditto if he or she implies that his or her services are free. If an advisor makes money from commissions, be sure to inquire about his or her fiduciary responsibility to put your best interest first.

You should know all of an advisor’s compensation sources, and if there are any other professionals they work with. Some advisors include tax-planning services without an additional cost, but many partner with accounting firms for all tax-related work. That means tax and legal services may incur an additional cost.

How to Minimize Financial Advisor Fees

Generally, investors with fewer assets under management pay a higher percentage of their assets in fees. Think hard about whether a traditional advisor is right for your situation or if you might be better served by a robo-advisor. Robo-advisors generally have lower fees and lower minimums.

If you decide a traditional, human advisor is right for you, there are two typical fee structures: fee-only and fee-based. Fee-only advisors’ fee structures tend to be simpler than their fee-based counterparts and hold less potential for possible conflicts of interest as they are not dually registered as either broker-dealer representatives or insurance agents. Fee-only advisors can still have potential conflicts of interest too though, and they’re required to disclose them just like fee-based advisors.

Once you have determined the type of financial advice that you need, here are five additional tips to help you minimize fees when choosing an advisor:

• Choose the right fee structure: Fee-only advisors charge a set rate and don’t make commissions from selling products. This fee structure could also reduce potential conflicts of interest. Fee-based advisors, on the other hand, might get commissions on top of the fees you pay, which could influence their advice.
• Comparison shop: Don’t settle for the first advisor you meet. Shop around, and compare fees and services offered by different advisors. This can help you find the best match for your financial goals and budget.
• Negotiate fees: Once you choose an advisor, don’t be afraid to negotiate the fees. Some advisors may be willing to lower their rates based on the amount of assets managed, or if you bundle more services with them.
• Ask about all costs: Inquire about all possible costs involved with their services, including any additional charges for special financial products or services. Make sure you understand what you are being charged and why.
• Monitor your advisor’s performance: Review the performance of your financial advisor regularly to confirm that you are getting good value for the fees you are paying. If your advisor’s performance does not meet your expectations or justify the costs, it may be time to look for another advisor.

Do Banks Offer Free Financial Advice?

Depending on what you’re looking for, you may be able to cut down your costs quite a bit by getting relatively easy questions answered by your bank. Most banks offer free financial advice from banking or financial professionals. Many larger banks offer certified financial advisors that you can consult with and get your questions answered.

These professionals work for the bank, though, so they may not have your best interest in mind at all times. It’s important to understand what the relationship is and how it works before jumping at the chance to get free financial advice. You may also end up paying more in fees at your bank for getting access to a service for more serious inquiries.

Robo-Advisor Fees vs. Traditional Advisor Fees

If you’re just starting out and have a small balance, you might consider working with a robo-advisor. As a rule of thumb, robo-advisors generally charge lower fees than traditional advisors. While traditional advisors typically charge higher fees, robo-advisor fees can be 0.25% to 0.50% of AUM, according to the same 2023 Advisory HQ report.

Of course, you’ll be getting different levels of service from each type of advisor. Though both provide portfolio management, a robo-advisor won’t guide topics like estate planning and insurance planning. Also, you’ll have limited access to humans with a robo-advisor. Typically, robo-advisors are recommended for people with less complicated situations and less to invest, while traditional advisors are suggested for those with more money and more complex financial situations.

Bottom Line

Selecting a financial advisor who charges fees you can genuinely afford and trust is a huge part of building a successful advisor-client relationship with them. Therefore, make sure you really do your research before making a final decision on a firm or advisor to entrust your assets. Beyond investments, also consider what other financial hurdles you might encounter, like paying for your children’s college or retiring comfortably. In turn, look for advisors who may have a specialty in those specific areas.

Tips for Finding a Financial Advisor

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
• If you’re worried about the financial advisor costs, consider using a robo-advisor. Robo-advisors typically require lower minimum investments and charge lower fees. This makes them a better option for people with less money to invest.

Next Steps

Do you want to learn more about financial advisors? Check out these articles:

• How to Choose a Financial Advisor?
• Are Financial Advisors Worth it?
• Are Financial Advisor Fees Tax-Deductible?
• What Commissions Do Financial Advisors Earn?
• How Do Financial Advisors Make Money
• What Are the Benefits of Working With a Financial Advisor?

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