How much should financial advice cost?
Whether your financial goals are short or long-term, professional financial advice can help you achieve them. But like anything, it comes at a price — so exactly how much does a financial advisor cost?
Although the cost of financial advice can vary, a good working relationship with a financial advisor can be worth the money.
Plus, it may not be as much as you think. With so many options at your fingertips, it's never been easier to access solid professional financial advice — and there are options available for people at every financial stage, from early savers to retirees.
Finding the right advisor for you could mean the fee ends up paying for itself pretty quickly, through savings or financial gains that you otherwise wouldn't have made.
What are the different types of financial advisor fees?
There is no one-size-fits-all approach to the cost of financial advice.
And this can be a good thing, as it means it’s accessible to those who want professional support, regardless of how much money they have.
Generally though, there are three types of financial advisor fees: hourly fees, asset percentage and fixed fees.
There are some advisors that charge on an hourly basis for their time.
One of the main benefits of using a financial advisor that charges an hourly rate is that they usually work under a fiduciary duty, meaning they are required by law to put their client’s best interests above their own.
As such, they will only make recommendations for financial plans and products that work for you, instead of pushing others that may make them a commission.
Percentage of assets
This is a very common way of financial advisors charging their clients.
Instead of charging a set fee, they will charge a percentage of the assets that are under management — or AUM — and deduct their fee from your account on a quarterly or monthly basis, based on your account balance.
So, if you’re doing well, your financial advisor is also doing well.
When paying a fixed fee for a financial advisor, you’ll be paying a predetermined amount for a specific service, which may include the creation of a financial plan.
This is instead of paying for their services on a rolling basis.
Before agreeing to a fixed fee, it’s important to ask for written confirmation on what is included as a part of the cost.
How much will I be charged by an independent financial advisor?
With numerous types of fee structuring, there’s a fair bit of variance in what you can expect to be paying for a financial advisor.
Ultimately though, the cost will be based on several factors: how much advice you need and the time it will take, as well as the size of the assets that are involved.
If they’re charging on a percentage-based structure, an advisor will generally charge around 0.25 per cent – 1 per cent of the asset in question.
The fixed fee may also take into consideration which asset they’re being asked to advise upon.
Bear in mind that lower percentages may be charged for larger assets, and vice versa for smaller assets.
A good relationship with a financial advisor can begin when settling upon a fee.
Advisors will be happy to discuss their fees up front with you, but the below guide from Smart Asset should offer a rough idea of the sorts of costs you’re likely to be facing.
It’s important to remember that although an upfront fee, or percentage cost, may sometimes look daunting, a financial advisor is part of your long-term investment strategy.
The short-term cost of an advisor will undoubtedly benefit you as you build upon your wealth.
What about robo-advisors?
A relatively new phenomenon is the robo-advisor.
These are automated software platforms that help to simplify investing, and often offer a much lower cost than in-person advisors.
They are deemed by many as both affordable and accessible, however, there are downsides to consider.
Robo-advisors are algorithm-based, so they will take into account top-line factors like your risk tolerance, financial goals and some personal information, but they won’t be able to tailor your financial plan to your specific needs.
How can financial advice save you money?
A financial advisor is an expert in what you should be doing with your money, and their knowledge is broad.
They can offer you recommendations on the right pension scheme, mortgage plans or where to invest your capital to build wealth.
An advisor should have your interests at heart, and will help you find ways to save your money effectively so that it isn’t impacted by things like inflation or taxation.
Is it worth it?
The short-term cost of financial advice should see you reaping the benefits in the long term.
As long as you’re paying for an advisor that is charging a fee within your means, it’s highly likely that you’ll reap the benefits of paying for professional advice surrounding your finances. It is their job, after all!
An expert view can dissuade you from rash or uneducated decisions, protecting you from many financial pitfalls.
An advisor can take a rounded view of your situation and suggest improvements.
Perhaps in retirement you’ll need to shore up some of your investments and take a more risk-averse approach in your asset allocation, or find a more efficient way of estate planning and paying down your debt.
Or, for example, an advisor could use tax minimization strategies to reduce your tax bill.
The bottom line is that a financial advisor can add all sorts of value.
They can help to take the stress out of your financial concerns; they can do the leg work on research; they can take the emotion out of your financial management.
But ultimately, they will help you to look after your money.
Kate has written for leading publications and blue chip companies over the last 20 years.