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The cost of working with a financial planner can vary widely depending on how they’re compensated, the services they provide and the complexity of your financial situation. While paying for professional advice may seem like another expense, the right planner can potentially help you avoid costly mistakes and make more informed financial decisions. Understanding the different ways financial planners charge, and what you can expect to pay, can help you compare your options and choose an advisor who fits both your financial goals and your budget.
A financial advisor can not only manage your assets, but also help you strategically plan for the future.
What Is Financial Planning?
Financial planning is the wide-ranging process of examining your financial circumstances and creating a specific plan to reach your goals. Financial planning can touch on a myriad of topics, including retirement, insurance, taxes, investing, estate planning and more. A financial advisor can double as a financial planner, offering both investment portfolio management and planning services. Financial planning can include the following services, among others:
- College funding
- Cash flow analysis
- Budget analysis
- Life insurance needs
- Long-term care insurance
- Savings analysis
- Retirement spending/distribution analysis
- Tax planning
- Estate planning
- Investment analysis
- 401(k) analysis
- Employee benefits review
- Stock options planning
The exact services offered by a financial planner will vary based on the professional. To choose a planner who meets your needs, be sure to ask about their professional credentials, the types of clients they typically serve and whether they earn commissions for recommending certain products or services.
Different Ways Financial Planners Are Paid
Financial planners can use several different compensation models, and the way they charge can affect both your costs and the services you receive. Some planners rely on a single fee structure, while others combine multiple forms of compensation. Understanding how each model works can help you compare advisors and choose one that aligns with your financial needs.
| Compensation Method | Typical Cost | How It Works |
|---|---|---|
| Hourly or Flat Fee | $150-$350 per hour (median: $250); project fees vary, with a median of about $1,800 for an hourly-based financial plan | You pay for a specific service or project, making this a good option if you need one-time financial advice rather than ongoing management. |
| Retainer or Subscription | Varies widely; median annual retainer of $4,000 | You pay an ongoing monthly, quarterly or annual fee for continuous financial planning and advice, regardless of your investment assets. |
| Percentage of Assets Under Management (AUM) | Typically around 1% annually (industry average about 0.96%) | Your advisor charges a percentage of the assets they manage on your behalf. As your portfolio grows or declines, your fee changes accordingly. |
| Commissions | Varies by product sold | The advisor earns compensation when you purchase certain financial products, such as insurance policies or investment products. |
Hourly or Flat Fees
Many financial planners offer advice on an hourly or flat-fee basis, making this model appealing for people who need help with a specific financial question or project. Hourly rates generally range from $150 to $350, with a median of $250 per hour, while the median cost of a financial plan created on an hourly basis is approximately $1,800. Flat-fee pricing varies depending on the scope of work but is typically quoted upfront, giving clients a clear understanding of the total cost.
Retainers and Subscription Fees
Retainers and subscription-based pricing have become increasingly common, especially for clients who want ongoing financial guidance without paying based on investment assets. Under this model, advisors charge a recurring monthly, quarterly or annual fee in exchange for continued planning services. Annual retainers can range from a few hundred dollars to tens of thousands of dollars, although the median annual retainer is approximately $4,000.
Assets Under Management (AUM) Fees
Many advisors who manage investment portfolios charge a fee based on assets under management. A fee of around 1% annually remains the industry standard, although some studies place the average closer to 0.96%. For example, someone with a $1 million portfolio would typically pay about $10,000 per year for ongoing portfolio management and, in many cases, broader wealth management services.
Commission-Based Compensation
Some financial planners earn commissions when clients purchase financial products such as insurance policies or certain investments. Because this compensation depends on product sales, it’s important to understand whether an advisor has incentives that could influence their recommendations. Many advisors disclose these arrangements and are transparent about how they’re compensated.
Combining Fee Structures
It’s also common for financial planners to use more than one compensation method. For example, an advisor may charge an AUM fee for managing your investment portfolio while also earning commissions on certain insurance products or annuities. Before hiring a financial planner, ask for a clear explanation of how they’re paid so you understand the total cost of the relationship and any potential conflicts of interest.
How to Look for a Financial Planner’s Fees
Every advisor registered with the U.S. Securities and Exchange Commission (SEC) is required to submit paperwork known as a Form ADV. This publicly available document includes two parts, the first is a series of fill-in-the-blank forms that provide specific information on the advisory firm like its location, the number of clients and assets under management.
The second part, known as Part II, is a brochure that explains the firm’s services, investing approach and any conflicts of interest. It’s in Part II where you’ll find a section titled “Fees and Compensation.” This section should provide the firm’s various fee structures and rates for different services, including financial planning. Some firms may not publish their fee schedule, in which case you’ll need to contact them directly.
To look up a Form ADV, visit the SEC’s Investment Adviser Public Disclosure website and search for specific advisors or firms.
Finding a financial advisor can feel overwhelming. SmartAsset’s list of the Top Fee-Only Financial Advisors in the U.S. offers a starting point for researching firms that operate under a fee-only compensation model.
How to Bring Up Fees Before You Agree to Work With a Planner
Talking about fees early in the relationship can help you avoid surprises later. A reputable financial planner should be willing to explain exactly how they’re compensated, what services are included and whether you’ll incur any additional costs beyond the quoted fee.
Start by asking for a written explanation of all costs associated with the relationship. In addition to advisory fees, inquire about account maintenance charges, trading costs, fund expense ratios or any other expenses that could affect your overall investment returns. Having the details in writing makes it easier to compare advisors and understand what you’re paying for.
Be sure to ask whether the planner is fee-only, fee-based or commission-based. If the advisor earns commissions from selling financial products, ask which products generate compensation and whether less expensive alternatives are available. Understanding these incentives can help you identify any potential conflicts of interest.
Not all advisory fees cover the same services. Ask whether ongoing investment management includes financial planning, retirement projections, tax planning, estate planning or periodic portfolio reviews. Knowing exactly what’s included can help you determine whether the advisor’s fee represents good value for your situation.
Before signing an agreement, find out whether your costs could increase over time. For example, advisors who charge a percentage of assets under management will generally collect higher fees as your portfolio grows, while hourly rates and retainers may be adjusted periodically. Understanding how your fees may evolve can help you budget for the long-term cost of professional advice.
Bottom Line
Financial planning encompasses a wide range of topics that people may need help addressing in their financial lives, including planning for retirement, budgeting and investing their money, among others. A financial planner may offer their services on a standalone or hourly basis. They can also be offered as part of comprehensive wealth management, which also includes asset management. Some planners operate on a retainer, as well. In these situations, you can consult with them at various times throughout a year or quarter.
Tips for Finding a Financial Advisor
- Need help finding a financial advisor or financial planner? 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.
- Interview at least three potential candidates before picking one. You may be inclined to settle for the first advisor you talk to. But do your due diligence and ask about their fee structures, rates, professional credentials and investing philosophy. Also, make sure they are under registration with the SEC and abide by fiduciary duty.
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