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  • Writer's pictureMark Fonville, CFP®

Typical Fees for Financial Advisors

Updated: Jan 7


Typical Fees for Financial Advisors

Understanding typical fees for financial advisors is crucial for anyone seeking financial guidance. These fees will have a dramatic impact on your retirement and overpaying in fees can take a significant chunk out of your nest egg.


Being aware of the fee structures, such as percentage-based, hourly, and flat fees, can help you make informed decisions. This can help with finding a financial advisor that aligns best with your goals.


So, why are fees so important in financial planning?


The main reason is they can impact your savings and returns. Over the course of 20 years, someone with a $100,000 portfolio paying 1% in fees would pay roughly $28,000.


That can feel like a lot of money. But, according to Northwestern Mutual, nearly 35% of Americans seek the help of a financial advisor.


At our firm, Covenant Wealth Advisors, there are many reasons why folks decide to pay for a relationship with a financial advisor including:


  • Expert Guidance: Financial advisors possess specialized knowledge and expertise in financial planning, investments, taxes, and retirement planning. They can offer informed advice tailored to your personal financial goals.

  • Personalized Financial Plan: Advisors can help you create a customized financial plan that aligns with your short-term and long-term objectives, risk tolerance, and life circumstances.

  • Investment Management: They provide insight into investment opportunities and can manage your investment portfolio, ensuring it remains aligned with your financial goals and risk tolerance.

  • Risk Management: Financial advisors can help identify potential risks in your financial plans and suggest strategies to mitigate them, such as diversifying investments or obtaining appropriate insurance coverage.

  • Time and Stress Reduction: Managing finances, especially investments, can be time-consuming and stressful. An advisor can handle these tasks, allowing you to focus on other areas of your life.

  • Tax Optimization: Advisors can provide guidance on tax-efficient investing and strategies to minimize tax liabilities, which can enhance your overall financial health.

  • Retirement Planning: They can assist in creating a robust retirement plan, ensuring you have a strategy for accumulating and managing wealth to support your lifestyle in retirement.

  • Estate Planning: Financial advisors can offer advice on estate planning, helping to ensure that your assets are distributed according to your wishes and in a tax-efficient manner.

  • Regular Monitoring and Adjustments: Financial advisors regularly review your financial situation and make necessary adjustments to your financial plan, responding to life changes or shifts in the market.

  • Education and Empowerment: They can educate you about financial matters, helping you to make more informed decisions and feel more confident about your financial future.


While there is a lot of potential value that can be gained from working with a financial advisor, it’s important that you understand the typical fees you may pay.


Next Steps: Finding the right financial advisor can be difficult. To make it easy, we've created the quick quiz below. Once you complete it, you'll gain access to our calendar so you can schedule a free retirement assessment.



Find out if your $1 million portfolio will sustain your lifestyle. Complete the survey above to get matched with a CERTIFIED FINANCIAL PLANNER™ professional at Covenant Wealth Advisors for a free retirement assessment. We will listen to your goals, create a free retirement roadmap, and answer key questions to help make your money last.

 

This article covers financial advisor fees, providing a guide for you to understand and prepare for the costs.


Types of Financial Advisor Fees


Type of Financial Advisor Fees

Financial advisors charge fees based on different structures. Here are some types of fees you may encounter:


Fee-Only

  • A Fee-Only financial advisor only earns compensation directly from their clients. This reduces conflicts of interest with commissions and third-party incentives.

  • Fee-Only structures can take many forms, such as hourly rates, where clients pay for the time spent on financial planning or consultations. Fixed fees involve a set amount for services, providing clarity on costs. Some Fee-Only advisors may also charge a percentage of the assets they manage. This can align their interests with the client's investment success.


Commission-Based

  • A Commission-Based financial advisor earns compensation through commissions on financial products and services they sell to clients. Instead of charging direct fees, these advisors receive payment from others.

  • Examples of products that might have commissions include mutual funds and insurance policies. When a client buys or sells these products, the advisor might receive a commission.


Fee-Based Hybrid Structure

  • A Fee-Based financial advisor uses a hybrid structure that combines both fees and commissions. In this model, the advisor may charge clients a fee for financial or investment planning., similar to a Fee-Only advisor. Also, they may earn commissions on financial products they recommend or sell.

  • This dual-source compensation can create conflicts of interest. The advisor might recommend products that not only align with the client's needs but also offer them higher commissions.


Performance-Based

  • A Performance-Based financial planner charges fees that are tied to the performance of the client's portfolio. Instead of a flat fee or a percentage of assets under management, these advisors earn a fee that’s contingent upon achieving investment benchmarks.

  • While this fee structure aligns the advisor's compensation with the client's investment success, it also introduces legal and ethical concerns. In some areas, performance-based fees may be subject to regulatory scrutiny due to conflicts of interest. Advisors might take excessive risks to boost their compensation.


Understanding Fee Percentages and Structures


Different fee structures can have a big impact on your bottom line. Being well-informed about these percentages and structures allows you to make sound financial decisions.


Here are a couple of common fees and their structures:


Percentage of Assets Under Management (AUM)

  • AUM is a fee structure where financial advisors charge a percentage of the total assets they manage for a client. Advisors typically calculate this fee annually and deduct it directly from the client's portfolio. The percentage ranges can vary but often fall between 0.5% to 2% of AUM.

  • For larger portfolios, the dollar amount paid in fees is higher. However, the percentage remains the same. This means that as your portfolio grows, the total fees paid also increase proportionally. For smaller portfolios, the dollar amount is lower, but the percentage may be higher. Many advisors also have minimum AUM requirements for new clients.


Flat Fees and Hourly Rates

  • Flat fees involve a predetermined, fixed amount for financial services, regardless of the time spent.

  • Hourly rates, on the other hand, involve charging clients based on the time spent on providing financial services.

  • Choosing between flat fees and hourly rates depends on your financial situation and the type of services you require. If you need ongoing financial planning, a flat fee might be more cost-effective and predictable. For sporadic advice and consultations, hourly rates offer flexibility and may be a better choice.

 

Next Steps: Falling portfolio values can be stressful. We recommend speaking with a financial advisor. This tool will connect you with a fiduciary financial advisor at Covenant Wealth Advisors with over 15 years of experience.


Here's how it works:


  • Answer these few easy questions, so we can understand your situation.

  • Schedule a call with a credentialed financial advisor who can help you on the path toward achieving your financial goals. It only takes a few minutes.

  • Check out the advisors' profile and have an introductory call on the phone or introduction in person, and choose who to work with in the future.



 

Additional Fees and Expenses


Account and Transaction Fees

  • Account-related fees often include maintenance fees. These are charges for ongoing management of your investment account. These fees may cover admin costs, account statements, and other services.

  • Transaction fees are charges incurred when buying or selling securities. These fees are from transactions, such as buying or selling stocks, bonds, or mutual funds.


Expense Ratios of Mutual Funds and ETFs

  • Expense ratios show the annual costs associated with managing mutual funds and exchange-traded funds (ETFs). These ratios are a percentage of the fund's net assets. They cover various expenses, including management fees, admin costs, and other expenses.

  • To find and compare expense ratios, investors can look at the fund's prospectus. This document shows detailed information about its fees and expenses. Many financial and investment platforms also display expense ratios for mutual funds and ETFs. When comparing expense ratios, it's essential to consider the type of fund and its investment objectives. Generally, lower expense ratios are preferable, as they leave more of the fund's returns for investors.


Comparing Fees Among Different Advisors


Comparing fees enables you to assess the value you're getting in return for the cost. Advisors offer varying levels of service and expertise, and comparing fees helps you gauge whether they align with your financial goals. Here are some things to consider when doing your research:



1. Questions to Ask Prospective Advisors

  • What’s your fee structure?

  • Do you charge a percentage of AUM, hourly fees, or flat fees?

  • Can you provide a breakdown of all fees and expenses I might incur?

  • Do you earn commissions on financial products you recommend?

  • Are there any performance-based fees?

  • How often do you assess and calculate fees?

  • Are there any penalties or fees for early termination of the advisory relationship?

  • Do you receive any third-party compensation or incentives for recommending products or services?

  • Can you estimate the total cost of your services based on my financial situation and investment goals?


2. Average Financial Advisor Fees: Researching average rates in the market can help you compare fees, and also help you avoid expensive advisors. The chart below outlines average financial advisor fees in 2023.

Average Financial Advisors Fees
Source: AdvisoryHQ

3. Using Fee Comparisons to Choose an Advisor

  • Understand the Fee Structure: Comprehend the advisor's fee structure. Understand how these fees will impact your overall costs.

  • Consider the Full Package: Look beyond fees and consider the package of services. A higher fee might be justified if the advisor provides more services and has a track record of strong investment performance.

  • Consider Your Financial Goals: Choose an advisor whose fee structure aligns with your financial goals. If you have specific needs or preferences, ensure the advisor's services match them.


When and How to Negotiate Fees With Your Financial Advisor


Negotiating fees with your advisor can be a daunting task, but it’s appropriate in certain scenarios. It's one of those conversations worth having if you feel it's necessary. Here are some tips for when and how to negotiate fees:


When to Negotiate:

  • Change in Financial Situation: If your financial situation has changed, it's a reason to discuss adjusting fees.

  • Performance Issues: If the advisor's performance has not met expectations, it can be a basis for fee negotiation.


How to Negotiate:

  • Research Comparable Rates: Before negotiating, research and compare rates in the market. Knowing the industry standard can strengthen your position during negotiations.

  • Highlight Your Loyalty: If you've been a loyal client, emphasize your commitment to the relationship. Advisors may be more willing to negotiate fees to retain loyal clients.

  • Propose a Win-Win Solution: Instead of outright asking for a reduction, propose a solution that benefits both parties. This could involve adjusting the fee structure based on performance metrics or introducing a tiered fee arrangement tied to account size.

 

Next Steps: Making the right social security timing decisions can be overwhelming. We recommend speaking with a financial advisor. This tool will connect you with a fiduciary financial advisor at Covenant Wealth Advisors with over 15 years of experience.


Here's how it works:


  • Answer these few easy questions, so we can understand your situation.

  • Schedule a call with a credentialed financial advisor who can help you on the path toward achieving your financial goals. It only takes a few minutes.

  • Check out the advisors' profile and have an introductory call on the phone or introduction in person, and choose who to work with in the future.




 

Financial Advisor Fees: Finding the Best Solution


Financial advisor fees can directly impact your financial outcomes. But, at the same time, you are always going to have to pay a fee if you want someone to manage your money professionally.


This is why it’s important to be aware of different fee structures. Clear knowledge of fee structures can help you make more informed financial decisions. You can compare the value of the financial advice to the overall costs. This enables you to budget and assess the impact on your portfolio. It’s good to choose an advisor whose fees align with your financial goals.


Taking an active role in understanding and negotiating fees is a big step toward financial empowerment. Don't hesitate to ask questions, seek transparency, and compare fees to ensure you're getting the best value. Negotiating fees is a normal part of the process and can lead to an arrangement that better suits your goals.


By having these conversations, you not only control costs but also can foster a better relationship with your financial advisor. This strengthens the foundation for your financial success. Remember, your financial well-being is a partnership, and being proactive about fees is a key aspect of that partnership.


If you have over $1 million in savings and investments, be sure to conduct our free retirement assessment to find the strategy that works best for you.


Additional Resources

Interested in learning more about fee structures for financial advisors? Check out these resources:

  1. Financial Advisor Fees Comparison By Michael Kitce’s blog

  2. Fee Advisory Bulletin by the Securities and Exchange Commission

 

Mark Fonville, CFP
Mark Fonville, CFP

Author: Mark Fonville, CFP®


Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money.


Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.


 

Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.


Registration of an investment advisor does not imply a certain level of skill or training.



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