How much you’ll pay in financial advisor fees depends a lot on what you want to do and the type of advisor you choose to help you. Here’s how to work through your choices.
Your first choice: human or automated help?
Your default mental image of a financial advisor may be a person in a business suit. But for many people, an automated service can be the better choice.
Robo-advisors are computer-based services that help you choose and manage investments. The advantages:
- Low fees and low or no account minimums, so it’s easy to get started investing toward financial goals.
- Easy-to-use features and advice, and most offer the option to communicate with a human when you have questions.
You may want to get going now with a robo-advisor so you’re not missing out on stock market returns, and then use a human advisor later for comprehensive financial planning.
Robo-advisors and many human advisors use a fee structure called “assets under management,” or AUM. Let’s look at that fee structure first, followed by some human-only approaches to fees.
Compare ‘assets under management’ fees
Typical cost: Robo-advisors start at 0.25% of your balance per year. Many top providers charge 0.50% or less.
For human financial advisors, the median is 1% per year, often starting higher for small accounts and dropping as your balance goes up.
How it works: Robo-advisors and many human advisors charge based on how much money they oversee for you. The fee typically is swept from your account monthly or quarterly.
Some human advisors don’t think the fee they’d collect on a small balance is worth their time, and many won’t take on clients with less than $250,000. In contrast, many robo-advisors have no minimum to get started, or a minimum of $500 to a few thousand.
In a standard brokerage account, you might also pay a commission to buy or sell investments — for instance, when you rebalance your portfolio. Robo-advisors frequently waive these charges.
» See NerdWallet’s picks for the best robo-advisors
Compare other fee structures
Human advisors who charge the kind of AUM fee outlined above may only manage your investments. If you have more complex needs — for instance, estate planning and analyzing insurance needs — seek an advisor who offers comprehensive financial planning services.
Beyond AUM, here are other fee structures a human financial advisor might use and how they work:
Retainer for services
Typical charge: Between $2,000 and $7,500 a year.
How it works: For an annual or monthly retainer, an advisor does comprehensive planning. That typically means creating a financial plan, helping you implement it, monitoring progress and adjusting as needed. The cost usually isn’t linked to how much you have available to invest, but you may pay more if your situation is complex.
The ongoing oversight can help if you have trouble sticking to a plan or need help changing behavior.
Typical charge: $200 to $400 an hour.
How it works: The advisor has a set hourly rate, which doesn’t change based on your asset level. You only pay for what you need.
This offers flexibility. You can pay for a few meetings to check your retirement savings progress, plan for the kids’ college or get a workable budget. Or, if you want a full financial plan, you can get that. You carry out the plan on your own.
Typical charge: The cost will vary by service, but $1,000 to $3,000 is typical for a financial plan.
How it works: Some advisors have a set fee for each type of service. You’ll get an outline of what’s included and see the fee upfront. You won’t get ongoing management, though; you carry out the plan yourself.
Typical charge: Varies by investment, but mutual fund sales loads typically fall between 3% and 6% of your investment.
How it works: Sometimes advisors are paid through commissions on the investments they recommend (and those commissions come out of your pocket).
Note: While some commission-based advisors undoubtedly put your needs first, others may be swayed by what product pays the highest commission. And the advisor may only be required to recommend investments that are “suitable” for you, not necessarily the best fit.
» Ready to act? See our guide to finding the best financial advisor for you.
Fee structure matters
If you choose a human advisor, be sure you understand how he or she earns money, exactly how much you’ll pay for services and what the services entail. Ask plenty of questions, and know these terms:
- A fee-only advisor doesn’t earn any commissions from investments. These advisors face the fewest conflicts of interest when offering advice. He or she may still piece together more than one fee type — for example, charging an AUM fee for investment management and a flat fee for financial planning.
- A fee-based advisor charges a fee but may also accept commissions from investments. Many advisors combine commissions with an AUM fee.
- A commission-only advisor earns his or her income from commissions on the investments bought and sold on your behalf.
» Read more: Learn the difference between fee-only and fee-based planners