How much does a financial advisor cost?

The cost of a financial advisor can vary widely, depending on the compensation structure they use and the services they provide. One common approach is to charge a percentage of assets under management (AUM), often ranging from 0.5% to 1.5%. Under this model, someone with $200,000 in liquid assets could pay anywhere from $1,000 to $3,000 annually for a financial advisor. But there are many different ways a financial advisor can charge for their services.

If you want to hire a professional to help manage your money but are worried about the cost, read on. We’ll explain how much a financial advisor costs and how financial advisor fees work.

Learn more: What is a financial advisor and what do they do?

You’ll often hear the terms “fee-only,” “fee-based,” and “commission-based” thrown around when you start shopping for a financial advisor. Here’s what each one means:

• Fee-only. A fee-only financial advisor is paid directly by their clients for the advice they provide and does not earn commissions. There are a number of ways fee-only advisors can charge for their services, including a percentage of AUMs, hourly rates, or flat per-service fees. Proponents argue that the fee-only model is the most transparent and encourages advisors to give objective advice since they won’t earn money by selling you a product. Many advisors who are fiduciaries, meaning they’re legally obligated to act in your best interest, use a fee-only model.

• Fee-based. Fee-based advisors charge clients directly for their advice, but they can also earn commissions for selling products. This model is sometimes referred to as “commission and fee.”

• Commission-based. Commission-based advisors earn money when they sell you a financial product. Critics contend that this model creates a potential conflict of interest. Some commission-based financial advisors are broker-dealers whose recommendations must meet what’s called the “suitability standard” instead of a fiduciary standard. Basically, they can recommend a product for their client — even if a better product exists — as long as it’s suitable for their client.

Learn more: 5 questions to ask your financial advisor before year-end

The cost of a financial advisor can differ significantly, depending on the advisor’s compensation model. Let’s take a look at how much you can expect to pay under a few common fee structures.

Financial advisors often charge a percentage of AUM. This percentage can vary, but a typical AUM fee is 0.5% to 1.5% of the amount of money your advisor is managing. Many advisors who follow this model have minimum asset requirements.

So, let’s say you hire a financial advisor to manage your $100,000 investment portfolio, and your advisor charges a 1% AUM fee. In the first year, you’d pay your advisor $1,000. If your assets grow to $120,000 the following year, your financial advisor would earn $1,200 (1% of $120,000), assuming their fee remains constant.

Some advisors charge tiered fees. Under this model, portfolios with smaller balances are charged a higher percentage, while balances above certain thresholds are charged a smaller percentage.

Here’s an example of what a tiered fee structure may look like:

• 1% on portfolios of $1 million or less

• 0.8% for $1,000,001 – $5 million portfolios

• 0.6% for $5,000,001 – $10 million portfolios

• 0.5% for portfolios above $10 million

The frequency of payments to your financial advisor may vary, but many charge fees on a quarterly basis.

Learn more: Alternatives to having a financial advisor: How to build wealth without one

Some financial advisors charge an hourly fee, often ranging from $200 to $400 for each hour billed. You’re most likely to encounter these models if you hire a financial advisor for occasional guidance or check-ins.

However, some financial advisors who offer their services by the hour charge a retainer fee. For example, a financial advisor who charges $300 per hour may have a $3,000 retainer fee. By paying their retainer fee, you’d be paying upfront for 10 hours of the advisor’s services.

Alternatively, financial advisors may charge a flat fee for the service they provide. For example, an advisor may charge you $3,000 to create a comprehensive financial plan or to review your insurance policies. Since you’re typically paying for a one-time engagement under this model, you’ll likely be responsible for implementing the recommendations.

Subscription models that charge clients a monthly or annual fee are particularly popular among financial advisors who offer their services online. Costs often range from $100 to $500 per month.

Some financial advisors who charge a subscription fee offer several different packages clients can choose from based on their budget and the level of support they want. They may offer a lower-cost package that includes basic financial planning, messaging with an advisor, and one or two sessions per year. But they may also offer premium packages that include additional sessions and access to more advanced planning services.

Financial advisors sometimes earn commissions if they sell you products, like mutual funds, life insurance, or annuities. Some examples of how a commission-based advisor may be compensated:

• Mutual funds. Class A share mutual funds carry a front-load commission, a commission that’s taken off the top of your investment. These fees are often in the neighborhood of 1.5% to 5.75%. If you invested $100,000 in a mutual fund with a 3% front-load commission for your advisor, you’d only invest $97,000, while you’d pay the other $3,000 in commission.

• Life insurance policies. Life insurance commissions can run upward of 90% to 100% of your first year of premiums, but they’re usually less than 5% of the premium each year you renew. Selling you on a permanent life insurance policy, like whole life or universal life, instead of a cheaper term life policy, could be especially lucrative to someone earning a commission. A 40-year-old male can expect to pay about $350 per month on average for a $250,000 whole life policy. For an advisor earning 100% of the first year’s premiums in commission, that translates to $4,200 off the bat.

• Annuities. Annuities are contracts that you purchase in exchange for a stream of income. Annuity commissions often range from 1% to 8% of the contract’s value. If you purchased a $100,000 annuity, that could add up to $1,000 to $8,000 in commissions.

Learn more: The total guide to life insurance

Commission-based advisors may be appealing when you don’t want to spend money upfront. The downside is that commissions could influence your advisor’s recommendations.

An alternative to hiring a human financial advisor is to use a robo-advisor. It’s a digital advisor that invests your money according to your risk tolerance and goals using algorithms.

Robo-advisors are often available through major brokerages and fintech companies. Many charge fees around 0.25% to 0.9% of your portfolio. Alternatively, some may charge a flat fee, such as $5 or $10 a month, which is common for accounts with low balances.

Pay attention to robo-advisor fees, especially if you’re getting started with a small amount and are paying a monthly fee. The fees may seem insignificant, but they can quickly erode your returns.

For example, if you invested a lump sum of $500 and paid a $5 monthly fee ($60 a year), that’s the equivalent of a 12% asset under management fee. In this case, you’re paying more in investment fees than the stock market returns in an average year.

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If your finances are relatively simple and you haven’t accumulated significant assets, you may not need a financial advisor unless you’d feel more comfortable with some professional guidance.

However, there are a few times when a financial advisor’s services could be especially valuable, such as:

• You’re preparing for a big change. If you’re getting married or starting a family, you want to buy a home, or you’re thinking of starting a business, professional advice is often worth the cost.

• Your net worth has grown. As you build wealth, your financial matters often become more complex. It’s sometimes recommended that you consider hiring a financial advisor once you have around $100,000 in assets.

• You’re getting close to retirement. When retirement is just a few years away, a financial advisor can be especially beneficial. An advisor can evaluate whether your investments are appropriate and can also assist with other retirement planning matters, like income strategies and when to claim Social Security.

If you’re worried about the cost of hiring a financial advisor, take some time to shop around. You may be able to find an advisor whose fees align with your budget.

Learn more: Retirement planning: A step-by-step guide

How much does a financial advisor make?

The average annual wage for personal financial advisors was $99,580 as of May 2023, according to the U.S. Bureau of Labor Statistics (BLS). The top 10% of financial advisors earn $239,200 or higher, the BLS reports. Meanwhile, the lowest-earning 10% made $48,730 or less.

At what point is it worth getting a financial advisor?

Hiring a financial advisor is often worth it when you’re anticipating a major life event, like marriage, the birth of a child, or a home purchase. You may also want to consider a financial advisor once you’re within 10 years or so of retirement or if you have at least $50,000 to $100,000 of investable assets.

Can you get a free financial advisor?

It’s pretty unusual to find a free financial advisor on an ongoing basis, however, some financial advisors and financial planners do pro-bono work. You may also be able to get free financial advice or tools through your bank or brokerage.