Investment Advisors: Definition, Prices and Whether You Need One
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An investment advisor (sometimes spelled "investment adviser") is a company or person who is registered with a state or federal regulator that permits them to choose, manage and recommend investments for clients.
Unlike other financial advisors who may not be regulated, investment advisors are regulated by their state or the U.S. Securities and Exchange Commission (SEC) depending on how much money they manage. Investment advisors may also offer services such as retirement planning.
How much does an investment advisor cost?
Investment advisors typically charge clients a percentage of the assets they manage. But they also may charge flat fees or an hourly rate for certain services. Here’s a look at the average cost of an advisor.
Fee type | Commonly associated with | Typical cost |
|---|---|---|
Assets under management (AUM) | Managing your portfolio of stocks, bonds and other investments. | 0.25% to 0.50% annually for a robo-advisor; about 1% for a financial advisor. |
Flat annual fee (retainer) | Special projects, such as analyzing whether to buy or sell your business. May also provide more access to the advisor. In some cases, advisors may substitute flat fees for AUM fees. | Typically $2,500 to $9,200. |
Hourly fee | Special projects, such as helping create a financial plan for a specific situation, such as a divorce. | $200 to $400. |
Per-plan fee | Creating a detailed, written comprehensive financial plan for a client. | Typically $3,000, but varies by service. |
Transaction costs and expense ratios | Fees that trading platforms charge the advisor to use, or fees that mutual funds, ETFs and similar instruments charge. | Varies; expense ratios may range 0.05% to 0.75%. |
Custodial fees | Fees that the custodian charges you to hold your assets. | May be around 0.10% to 0.15%, but varies by account size, asset type, transaction activity and custodian. |
Bundles the firm’s investment management services and related custodial transaction costs together for one price. | Varies by account size and type. | |
Commission | Money earned from financial institutions for buying or selling certain products to clients. | 3% to 6% of investment transaction amount. |
To compile this information, we reviewed industry studies on average rates among financial advisors. Those studies included:
We also reviewed fees charged by providers reviewed by the NerdWallet investing team. | ||
» Learn more: How much does a financial advisor cost?
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Is an investment advisor worth the cost?
Do you really need an investment advisor? That depends on how comfortable you are selecting, monitoring and managing investments yourself.
Generally speaking, the more complicated your financials, the more valuable professional help can be. If you feel your money isn't working hard enough, a financial advisor can help figure out next steps.
For simpler finances or a lower-cost option, a robo-advisor might be a better choice.
» MORE: Check out our roundup of the best robo-advisors.
What is the difference between an investment advisor and a financial advisor?
The terms investment advisor and financial advisor are often used interchangeably, but they are not the same. While “financial advisor” can refer to many different types of financial professionals, an investment advisor is a legally regulated term.
How do I vet a financial advisor?
For starters, confirm that the advisor is registered with the SEC or state. Registered investment advisors, or RIAs, have a fiduciary duty to their clients. This means they are legally obligated to act in their client's best interest and disclose any potential conflicts of interest .
Investment advisors do not have to take a specific qualifying exam, but they generally must meet certain licensing requirements. Many investment advisors also have other certifications, such as certified financial planner (CFP) or chartered financial analyst (CFA). These designations may allow them to offer more holistic financial guidance — for example, advice on how to budget, save on taxes, plan for retirement or pay down debt — in addition to investment advice.
When vetting a potential investment advisor, take these additional steps:
Be clear about what you’re looking for: Make sure their certifications or licenses meet your needs.
Interview them to find the right fit: Always ask about their qualifications, if they have a fiduciary duty to their clients and how they get paid.
Verify their credentials: You can look up an investment advisor’s background through the Financial Industry Regulatory Authority’s BrokerCheck, which offers information on both SEC- and state-registered investment advisors.
» Want to know more? Learn how to choose a financial advisor.
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