Financial planners and investment advisors can help put you closer to your financial goals by creating a comprehensive financial plan that includes managing your money, providing investment advice, tax, retirement and estate planning, and many other services.
You’ll pay for that assistance in one of two ways. Investment advisers are often paid a flat hourly fee for assistance with financial planning, though their pay can also be blended with a small percentage of assets under management. As the client’s asset pool grows, this percentage may decrease to create an overall net-blended effect.
In this article we’ll take a closer look at how fee-based financial planning works to help you decide which method you might prefer.
What Do Fee-based Investment Advisers Charge
Fee-only (also known as fee-based) investment advisors typically charge their clients a flat fee for their services. Generally speaking, your investment adviser will charge a minimum of 1 percent of all assets under management. So, if you have $1 million in your portfolio, your financial planner will charge you $10,000 per year for his or her services.
This payment structure can be beneficial for both parties – the better your portfolio performs, the more the adviser makes. Investment advisers often will lower their percentage for high-net-worth portfolios, while smaller portfolios might pay a higher amount. For example, the average annual fee in 2021 for portfolios of $50,000 or less was 1.45 percent, while the average annual fee for portfolios of $5 million or higher was .25 percent.1
Investment advisers provide a wide range of financial and investment services, but you might have to pay more for tax, legal, and accounting services. Additionally, if you have an actively managed portfolio run by a team of financial professionals who are constantly monitoring your portfolio’s performance in an attempt to maximize potential returns, you can expect to pay higher fees.
What Do Financial Planners Charge?
Financial advisors compensated by selling financial products, completing financial transactions on your behalf, or providing specific services.
Theoretically, you’ll pay nothing unless you tap into their services or purchase any of the financial or insurance products they offer. Financial advisors are required to provide clients with a disclosure agreement titled “Best Interest Contract Exemption” if a situation arises where a potential conflict of interest could arise.2 Examples include receiving higher compensation if clients purchase a particular financial product or type of insurance. This disclosure is meant to provide increased transparency since the advisor would benefit financially by selling clients particular services or products.
The Bottom Line
Using a financial advisor can help you as you strive toward the goal of financial security. Many investment advisers charge by the hour, and some include a flat fee, which is a percentage of assets under management. This model of fee-based financial planning provides increased transparency for clients and alleviates conflicts of interest.
Other financial planners are paid for performing certain financial services or when they sell certain financial company offerings or product lines. This model may lead to lower overall costs since you only need to purchase the services and products you want. However, you should be cautious that your advisor doesn't push offerings that would be more beneficial to his or her bottom line instead of yours.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
