Introduction
Estimating the cost of an investment advisor can be as challenging as financial planning. Some financial advisors prefer to charge a flat fee, while others operate on a variable percentage. There are six ways that financial advisors charge their fees. Learn what they are so that you can find the right professional. This information can also help you budget for essential advice to help you achieve your financial goals.
Percentage of Assets
One of the most common ways that financial advisors charge fees is based on a percentage of the assets they manage on your behalf. Average fees can range from 0.50% to 2.0% annually. In most cases, the more assets you have, the lower the percentage of total assets required for fees.
Commissions
Some financial advisors charge a flat fee or a percentage of the investment you buy or sell through them. These costs can range from 3% to 8.5% of the investment price. Commissions typically take two forms:
Combination of Fees and Commissions
Many advisors today charge both fees and commissions. These advisors are described as “charging fees based on the assets they manage. They may charge a small percentage based on the assets they manage. Some may prefer a flat fee or a commission percentage when buying or selling.”
Hourly Fees
Advisors who charge fees based on this model charge a specific amount per hour of advice provided. Costs can add up if you need an advisor to support you throughout the process. However, hourly pay can be a great option if you’re willing to implement their advice yourself.
Flat Fees
When you need help with a financial planning project, working with a financial advisor for a one-time fee is beneficial. For example, when preparing an initial retirement plan, it may make sense to pay a flat fee to crunch the numbers. This can help you understand what goes into making strong projections for a retirement plan.
Consultation Fees
Under this pricing structure, a flat fee is charged at regular intervals, such as quarterly or annually, to access the services of an advisor. You may benefit from ongoing assistance if you have a more complex situation, such as ongoing stock options to exercise, owning a small business, or needing to withdraw regular income from your investments.
How to Know Your Advisor’s Fees
Fees can vary across each compensation structure. The best way to estimate a financial advisor’s costs is to ask for a clear explanation of their compensation before hiring them. Look for an honest and straightforward answer. Avoid those who try to sidestep the question or tell you not to worry or imply that services are free. Online advisor search engines allow you to filter by specific criteria, such as the type of compensation the advisor uses.
Source: https://www.thebalancemoney.com/ways-financial-advisors-charge-fees-2388441
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