Did you know that 70% of Americans confess to having bad spending habits, with impulse buying being one of the main culprits? For most people, managing finances is easier said than done, and careless spending leaves most of them in a financial rut.

Ever heard of the phrase, “spend money to get money?” Well, that’s exactly the premise behind hiring a financial advisor. So before asking how much does it cost to hire a financial advisor, ask yourself what the financial advisor can do for you.

In today’s post, we’ll be answering both questions, starting with what services financial advisors offer. Later, we’ll look at how much it costs to hire a financial advisor.

What Does a Financial Advisor Do?

A financial advisor is a professional who provides financial advice to clients based on their individual needs.

Financial advisors typically have a background in financial planning, accounting, or investment management. They work with clients to develop a financial plan that meets their long-term financial goals.

Financial advisors can provide advice on a variety of topics, including retirement planning, estate planning, investment strategies, and risk management. The financial planning process typically includes goal setting, asset allocation, and budgeting. These professionals can help clients identify their financial goals and develop a plan to achieve them.

What’s more, they can also provide guidance on how to best allocate assets and manage risk. For many people, working with a financial advisor can be an invaluable experience that helps them achieve their financial goals.

How Much Does It Cost to Hire a Financial Advisor?

While a financial advisor is clearly beneficial, there’s always the question of how much is a financial advisor? It’s always good to have a firm idea of what you should expect to pay the financial advisor before hiring them. To understand how much it costs to hire a financial advisor, let’s first look at some payment structures financial advisors employ.

Different financial advisors employ different payment structures for their services. Some of them include:

Percentage of Assets Under Management (AUM)

This is the most common type of fee charged by financial advisors. The advisor charges a percentage of the assets they manage on behalf of the client. The typical fee charged is between 0.50% and 0.90% per year.

For example, if an advisor charges a 0.50% fee and manages a portfolio of $500,000, the client would pay the advisor $2,500 per year. This type of fee structure is often used by financial advisors who work at large firms.

It’s important to note that this type of fee structure is typically only used for investments and does not cover other financial planning services.

While this type of fee may seem high, it’s important to remember that the advisor is managing a substantial amount of the client’s money.

Fixed Fees

This is a fee charged for a specific service provided by the financial advisor. For example, an advisor may charge a fixed fee for creating a financial plan. This type of fee is often charged in addition to other fees, such as the AUM fee.

Fixed fees can range from a few hundred dollars to a few thousand dollars, depending on the complexity of the financial plan. For example, a simple financial plan for a young couple just starting out may only cost a few hundred dollars.

On the other hand, a more complex financial plan for a family nearing retirement may cost a few thousand dollars.

Hourly Charges

A financial advisor may charge an hourly rate for their time, similar to how an attorney would charge for their services.

Hourly rates can vary widely, depending on the advisor’s experience and location. For example, an advisor in New York City may charge $250 per hour, while an advisor in a small town may only charge $100 per hour.

This type of fee structure is often used for one-time services, such as creating a financial plan. It’s less common for ongoing services, such as investment management.

Commission

A financial advisor may charge a commission for selling certain products, such as mutual funds or insurance. Commissions are typically a percentage of the product’s price. For example, if an advisor sells a mutual fund with a sales charge of

Commissions are typically a percentage of the product’s price. For example, if an advisor sells a mutual fund with a sales charge of $100,000, they might ask for a 3% commission. This means you’ll have to pay the financial advisor $3,000 for the sale.

This type of fee is often used by financial advisors who work at banks or brokerages. It’s important to note that commissions aren’t always a means to cut your profits.

In some cases, it may be in the best interest of the client to purchase a product with a commission, such as insurance.

Performance-Based Fees

This type of fee is based on the performance of the investments managed by the financial advisor. The advisor only earns a fee if they are able to generate a positive return on the investment.

For example, an advisor may charge a 20% performance fee on any returns above the benchmark index. So, if the advisor is managing a portfolio of $100,000 and generates a return of 12%, the client would owe the advisor $24,000 ((12%-0%) x $100,000 x 20%).

This type of fee structure is often used by hedge fund managers and other investment professionals.

How Much Should I Expect to Pay My Financial Advisor?

There’s no one-size-fits-all answer to this question, but most charge fixed fees of about $7,500 for assets under $500,000. Others charge about $55,000 for assets over $7.5 million dollars.

Some of the best financial advisors have packages for different asset classes and clients. You can find help with Botto Financial and chart a thriving financial future.

The Cost of a Financial Advisor Simplified?

Now that you know the answer to “how much does it cost to hire a financial advisor?” Our work here is done. It’s now up to you to find a reputable financial advisor to help you make good use of your money.

We wouldn’t advise skimping on your financial advisor. Steer clear of financial advisors that charge meager fees for their services. There’s a high chance you’ll get what you pay for.

Don’t forget to check out the other posts on the site for more informative reads.