The average commission of a financial advisor is generally around 1% of the assets they manage. However, the more money you have invested, the lower the fee. One of the most common ways financial or investment advisors charge you is based on a percentage of the assets they manage on your behalf. Average fees can range from 0.50% to 2.0% per year.
In most cases, the more assets you have, the lower the percentage of your total assets they will collect. This is the most common way traditional financial advisors charge for their service. This is called “assets under management” or “AUM fee model”. The current industry standard is to charge between 0.50% and 2% of assets that are managed annually.
Most advisors will fall around the 1% rate and will often charge a discounted rate above certain asset levels or thresholds. A paid-only advisor does not charge commissions as part of their advisory service. This type of financial advisor fee structure comes in three varieties: flat rate, hourly, and percentage. Whether it sounds reasonable or not depends on you and the level of services your financial advisor provides.
Many financial advisors who only offer advice will have their certified financial planner certification and will likely charge a fixed or hourly rate for their services. When discussing fees with your financial advisor, be sure to ask about any additional costs you may incur. Best for: If you have a good income, but don't have a large balance of investable assets and you still want access to a financial advisor, the revenue percentage model can be a good solution. Not only do you pay more for non-fiduciary financial advice, but in most cases, your investments also worsen.
When a financial advisor manages assets, many clients cannot see the direct impact of the fees withdrawn from their accounts over time. Even the best single paying advisor who earns the highest return should be challenged by these financial advisor positions. Unlike a traditional financial advisor, that planning is done virtually, through telephone or video meetings. One of the other notable trends in financial advisory fees in recent years is that financial advisors have been forced to do more and more to justify their fees, resulting in a deepening in the number of financial planning services provided to clients for that same AUM fee, and a concomitant decline in the profit margins of advisory firms.
Instead, the standard investment management fee is also increasingly a financial planning fee, and the typical advisor allocates almost half of their pooled AUM fee to financial planning services (or charges separately for financial planning). As mentioned above, they can be a little lower at times, because this financial advisor also earns commission income. More and more advisors are dividing annual financial planning fees into monthly subscription costs. As your living situation changes over time, you'll find that the financial plan becomes less and less relevant and useful for your financial goals.
If you're thinking of hiring a fixed-rate financial advisor, it's important to research under the hood to understand what services are offered and how the fee is calculated.