Financial advisors provide different services to their customers such as investment management, income tax preparation, and estate planning. Financial advisors require a Series 65 license to conduct business. Series 65 is a securities license that is required by our country for individuals who act as investment advisors.
When you are ready to create a financial plan as an investor, you might need a financial advisor. Financial advisors incur a fee to help you make a proper investment plan that offers you good monetary returns.
There are two types of financial advisors: Robo-advisors and personal financial advisors. Robo-advisors are digital services that help you choose and manage investments. Usually, these digital financial advisors state the costs on their websites. Typical fee ranges from 0.25% to 0.89%. Computer-based services have easy-to-use features and offer plan-specific advice. Digital financial advisors are good for those who have just started out managing their finances.
Human financial advisors, on the other hand, can have a complex fee structure that is based on your investment and financial portfolio. Most financial advisors incur a fee that can be 2% of the assets in your portfolio. They offer holistic financial advice on broader topics like estate planning, income tax filing etc. They are beneficial for individuals with an established wealth of at least $150,000.
Let us take a closer look at the financial advisors’ fee structure:
An approach based on the percentage of assets
As discussed above, the typical fee structure of robo-advisors and human advisors is 0.25%-0.89% and 1%-2% respectively. Financial advisors charge fees based on the amount of money they manage on your behalf. For instance, if you have $250,000 in your financial portfolio, then the financial advisors will charge 1% AUM (Assets Under Management) fee on the total amount, which totals up to $2500 for a year. Financial advisors’ fee is geared more toward wealthy portfolios. This is the reason they think that the fee they would collect from smaller portfolios would not be worth their time.
So, if you have a financial portfolio of nearly $100,000, consider robo-advisors as they charge only 0.25% of the total amount which is just $250 a year. Most robo-advisors even offer low or no minimum balance accounts. This can help you get started with a much lower investment status.
While using robo-advisors, you can also opt for hybrid models where it gives you an option to communicate with a personal financial advisor. You can ask your queries via live chat or contact them through the phone.
Fees structure specific to personal financial advisors
Once you decide on having a financial advisor, choosing the right financial advisor can be overwhelming. To start with, you should look for personal financial advisors if you want a holistic guidance on how to allocate your money in order to achieve your financial goals. The fee structure of different financial advisors is based on the type of financial advisors, the amount and type of financial consultation you need. Here are the types of financial advisor fees based on the aforementioned factors.
- Retainer for services
Holistic planning requires an annual or monthly retainer. The financial advisor fees for the same ranges from $2,000 to $5,000 based on the investment portfolio. Retainer charges include creating a financial plan for the investors and monitoring the progress of their investments and wealth management.
- Hourly rate
There are many financial services that incur charges based on what you need on an hourly basis. The rates of these financial services do not change based on your asset level. The hourly rate has a typical charge of $200 to $400 an hour. Once the services are rendered, it is up to the investor whether to carry out the plan. These financial services offer flexibility as you pay an advisor for a few meetings to plan a financial portfolio for retirement or gather funds for your children’s college.
The typical charges for commission vary by the type of investment. The percentage of commission earned through investments in mutual funds typically ranges between 3% to 6% of the total invested funds. Commission-based financial advisors are typically paid through commissions on the investments they recommend to their customers.
- Flat fee
It typically varies on the basis of the service provided to the customers. The financial advisor’s flat fees for a typical plan varies between $1,000 to $3,000. You should choose financial advisors with a flat fee if you are not willing to pay on an hourly basis but still want a specific service that will help set up your financial portfolio. Flat fee financial advisors will give you the outline of the services provided and will charge you upfront without getting involved in your ongoing financial management.
Look for personal financial advisors through resources such as National Association of Personal Financial Advisors and Financial Planning Association. Apart from this, there are a few financial websites that can help you pick the best digital or hybrid advisors that offer the best services in exchange for affordable financial advisor fees.