What services do financial advisors offer?
Traditional financial advisors
A traditional financial advisor is an individual with a license to provide investment advice. Some financial advisors are Certified Financial Planners (CFP), which is one of the highest levels of certification for financial planners.
Chartered Financial Analysts (CFA) and Chartered Financial Consultants (ChFC) are two other reputable certifications.
A financial planner or advisor offers a variety of services, including:
- Retirement planning
- Tax planning
- Saving for college
- Estate planning
- Budgeting and debt payoff
Many financial planners specialize in specific areas. For example, some may prefer to work with young families, while others help those transitioning to retirement.
A financial planner can answer most of your money-related questions, or at least be able to direct you to the appropriate resource. They can also create specific plans based on your goals.
Most financial planners can also physically manage your investments for you, choosing where to invest and how to diversify your portfolio. They may then take charge of those investments or give you a road map to follow on your own. Financial planners may be employed at a major company or work alone in private practice.
The best type of financial planner will have a fiduciary duty. A fiduciary duty is a legal responsibility to recommend only the best products and investments available, rather than products and investments that may earn the financial planner a higher commission. Before you pick a financial planner, make sure that they are fiduciary.
Read more: Best financial advisors
Rather than human recommendations, a robo-advisor uses algorithms to determine how you should invest. When you open an account with a robo-advisor, the system will ask you a series of basic questions about your age, income, family size, and desired retirement age. You will also have to provide a list of your current assets and liabilities.
It will then use that information to determine where and how much you should invest. You can set up automatic transfers from your bank account to the robo-advisor, which will invest that money for you.
Robo-advisors have fewer fees than personal financial planners, so it can be easier to get started. If you can’t afford the high fees associated with a personal financial planner, a robo-advisor may be a better fit.
Some robo-advisors may also offer access to qualified financial planners so you can ask specific questions and get a customized, human answer. Note that you may have to meet certain investment thresholds to use one of these services, and you often have to pay a separate fee. For example, Personal Capital only offers financial planning services to those with at least $100,000 in investable assets.
Read more: Best robo-advisors
How much do financial advisors cost?
Personal financial planners
Individual financial planners may charge for their services in several different ways. Here are the most common types of fees you will see:
Assets under management
If you want a financial planner to direct your investments personally, then you pay them a fee based on the assets under management (AUM). The average fee for this service is 1% AUM. For example, if you have a $200,000 investment portfolio, you will pay $2,000 a year.
Customers who are uncomfortable with managing their money may prefer this AUM model. However, it may be less expensive to figure out how to handle your investments yourself. You can hire a financial planner to create an investment plan for you, but also learn the ins and outs of moving that money around on your own.
Many financial planners, especially those with a fiduciary duty, charge clients on an hourly basis. The average hourly rate is between $200 and $400.
When you meet with a financial planner on an hourly basis, you will be billed for the total amount of hours spent with them. Some may have an hourly minimum you must reach per session, such as two hours. You may receive free or limited email support following the meeting, which depends on the planner.
Read more: 13 questions to ask when you interview a financial advisor
Some planners offer a retainer model where you can pay a set fee and receive access to a limited amount of advice and guidance. If you do not use their services, you usually can’t roll over that time into the next year.
The cost for a retainer from a financial planner is often between $2,000 and $7,500 annually.
Customers often hire financial planners to help them create a comprehensive money plan that will include recommendations on where to invest and how much to save. If you have access to an employer-sponsored retirement account like a 401(k), they may be able to evaluate the funds available in that plan and recommend an investment strategy.
The typical cost for a project or plan is between $2,500 and $3,000. This will usually not include implementing the plan’s recommendations, which falls on the customer’s shoulders.
Some financial advisors get paid when you purchase a recommended product. Advisors who work on commission will recommend investment products that come with load fees, which can range between 3% and 6%.
Even though commission-based financial advisors may seem like the least expensive upfront option, they often will not recommend the best products for you. They may suggest investments that have the highest commission fees, even if there are better options available.
Some planners choose to charge a flat annual fee for investment management services instead of charging by AUM. For high net-worth clients, this fee may be a better deal than paying by AUM. However, you will still end up paying between $1,000 to $5,000 annually on average.
Read more: How to get a financial advisor when you’re on a low income
Most robo-advisors charge an annual fee, taken as a percentage of your invested assets. The fee will vary depending on the specific robo-advisor but is usually between 0.15% and 0.30%.
For example, Vanguard Digital Advisor only charges 0.20%, but has a $3,000 minimum investment, which is higher than most robo-advisors. On the other hand, Personal Capital charges 0.89% for accounts worth up to $1 million. Acorns is one of the only robo-advisors that charges a set monthly fee no matter the amount invested — either $3 or $5.
You can expect to pay anywhere from $1,000 to $7,500 (or more) a year for the services of a financial planner. The specific fee will depend on how you want to receive advice, how much money you have invested, and the type of financial planner you choose.
But if you are comfortable managing your investments yourself, you may be able to save money by avoiding the fees associated with hiring a professional.