How much is a financial advisor?

The cost of a financial advisor can vary greatly, depending on the compensation structure they use and the services they provide. Another common approach is to charge a percentage of assets under management (AUM), usually from 0.5% to 1.5%. Under this model, a person with $200,000 in liquid assets could pay anywhere from $1,000 to $3,000 annually for a financial advisor. But there are many different ways a financial advisor can charge for their services.

If you want to hire a professional to help manage your money but are worried about the cost, read on. We will explain how much a financial advisor costs and how financial advisor fees work.

Learn more: What is a financial advisor and what do they do?

You’ll often hear the terms “fee-only,” “fee-based,” and “commission-based” thrown around when you first start shopping for a financial advisor. Here’s what everyone had to say:

• Fees only. A financial advisor only gets paid directly by their clients for the advice they give and does not receive commissions. There are several ways that fee-only advisors can charge for their services, including a percentage of AUM, hourly fees, or flat fees per service. Proponents argue that the fee-only model is the most transparent and encourages advisors to provide accurate advice as they will not earn money by selling you a product. Many advisors who are fiduciaries, meaning they are legally obligated to act on your behalf, use a fee-only model.

• Fixed charges. Fee advisors charge clients directly for their advice, but they may also receive commissions for selling products. Sometimes this model is called “commission and fee.”

• Commission established. Commission-based advisors earn money when they sell you a financial product. Critics argue that this model creates a potential conflict of interest. Some commission-based financial advisors are brokers whose recommendations must meet what is called an “eligibility standard” rather than a fiduciary standard. In fact, they can recommend a product for their customer – even if a better product exists – as long as it’s right for their customer.

Learn more: 5 questions to ask your financial advisor before the end of the year

The cost of a financial advisor can vary greatly, depending on the advisor’s compensation model. Let’s take a look at how much you can expect to pay under a few common fee structures.

Financial advisors usually charge a percentage of AUM. This percentage can vary, but a typical AUM fee is 0.5% to 1.5% of the amount your advisor manages. Many advisors who follow this model have minimal property requirements.

So, let’s say you hire a financial advisor to manage your $100,000 investment, and your advisor charges a fee of 1% of AUM. In the first year, you would pay your consultant $1,000. If your assets grow to $120,000 in the following year, your financial advisor will receive $1,200 (1% of $120,000), assuming their fee remains the same.

Some consultants charge different fees. Under this model, portfolios with smaller balances are charged a higher percentage, while balances above certain amounts are charged a smaller percentage.

Here’s an example of what a low-cost structure might look like:

• 1% on portfolios of $1 million or less

• 0.8% for $1,000,001 – $5 million portfolios

• 0.6% for $5,000,001 – $10 million portfolios

• 0.5% for portfolios above $10 million

The frequency of payments to your financial advisor can vary, but most charge fees quarterly.

Learn more: Alternatives to having a financial advisor: How to build wealth without one

Some financial advisors charge an hourly fee, usually from $200 to $400 for each hour billed. You may encounter these types if you hire a financial advisor for periodic guidance or input.

However, some financial advisors who offer their services by the hour charge a retainer fee. For example, a financial advisor who charges $300 an hour may have a retainer fee of $3,000. By paying their retainer fees, you will be paying in advance for 10 hours of consultant services.

Alternatively, financial advisors may charge a lower fee for the services they provide. For example, an advisor may charge you $3,000 to do a comprehensive financial plan or review your insurance policies. Since you are usually paying for one-time commitments under this model, you will likely be responsible for implementing the recommendations.

Subscription models that charge clients a monthly or annual fee are popular among financial advisors who offer their services online. Costs typically range from $100 to $500 per month.

Some financial advisors who charge a subscription fee offer different packages that clients can choose from based on their budget and the level of support they want. They can offer a low-cost package that includes a basic financial plan, texting with a mentor, and one or two lessons a year. But they may offer premium packages that include additional sessions and access to advanced design services.

Financial advisors sometimes earn commissions if they sell you products, such as mutual funds, life insurance, or annuities. Some examples of how a commission-based consultant can be paid:

• Mutual funds. Class A mutual funds have a front load commission, a commission deducted from your investment. These fees are usually in the range of 1.5% to 5.75%. If you invested $100,000 in a mutual fund with a 3% front-load commission for your advisor, you would only invest $97,000, while paying another $3,000 in commission.

• Life insurance policies. Life insurance commissions can run from 90% to 100% of your first year’s premiums, but are usually less than 5% of your annual renewal premium. Selling you a permanent life insurance policy, such as whole life or whole life, instead of a low-cost term life policy, can be very beneficial to the person earning the commission. A 40-year-old man can expect to pay about $350 a month on average for a $250,000 whole life policy. For a consultant who earns 100% of the first year’s fees in commission, that translates to $4,200 from bat.

• Annual income. Annuities are contracts that you buy in order to get more money. Annuity commissions typically range from 1% to 8% of the contract value. If you bought a $100,000 annuity, that could add $1,000 to $8,000 in commissions.

Learn more: The complete guide to life insurance

Commission-based advisors can be attractive if you don’t want to spend money upfront. The downside is that commissions can affect your advisor’s recommendations.

Another way to hire a personal financial advisor is to use a robo-advisor. It is a digital advisor that invests your money based on your risk tolerance and goals using algorithms.

Robo-advisors are usually available through large brokerages and fintech companies. Most charge fees of around 0.25% to 0.9% of your portfolio. Alternatively, some may charge a flat fee, such as $5 or $10 per month, which is common for accounts with low balances.

Be aware of robo-advisor fees, especially if you’re starting with a small amount and paying a monthly fee. The fees may seem insignificant, but they can quickly eat away at your earnings.

For example, if you invested $500 and paid $5 monthly ($60 annually), that equates to 12% of the property under management fee. In this case, you are paying more capital than the average annual return of the stock market.

Learn more: How to take advantage of Robinhood’s 3% IRA bonus and 1% on transfers

If your finances are relatively simple and you haven’t accumulated significant assets, you probably don’t need a financial advisor unless you feel comfortable with some professional guidance.

However, there are several times when the services of a financial advisor can be very important, such as:

• You are preparing for a big change. If you’re getting married or starting a family, looking to buy a home, or thinking about starting a business, professional advice is often worth the cost.

• Your money has grown. As you build wealth, your financial affairs often become more complex. It is sometimes recommended that you consider hiring a financial advisor once you have assets of around $100,000.

• You are about to retire. When retirement is only a few years away, a financial advisor can be very useful. An advisor can assess whether your investments are sound and can help with other retirement planning issues, such as income strategies and when to claim Social Security.

If you’re worried about the cost of hiring a financial advisor, take the time to shop around. You may be able to find a consultant whose fees fit your budget.

Learn more: Retirement planning: A step-by-step guide

How much does a financial advisor make?

The median annual salary for personal financial advisors was $99,580 as of May 2023, according to the US Bureau of Labor Statistics (BLS). The top 10% of financial advisors earn $239,200 or more, the BLS reports. Meanwhile, the lowest-earning 10% made $48,730 or less.

When is it important to find a financial advisor?

Hiring a financial advisor is often necessary when you are anticipating a major life event, such as a wedding, the birth of a child, or the purchase of a home. You may also want to consider a financial advisor once you are 10 years or more from retirement or have at least $50,000 to $100,000 of investable assets.

Can you find a free financial advisor?

It is rare to find a free financial advisor on a regular basis, however, some financial advisors and financial planners do pro-bono work. You may be able to get free financial advice or resources through your bank or business.