How much does it cost to talk to a financial advisor? It depends on several factors. Before finding out the cost of a financial advisor, there are many things you must research. You must determine what area of your life needs money management. Once you have settled on the areas of concern, it is time to learn about the different types of financial advisors available to select the type of services you may need. Consider your budget before talking to an advisor. It is prudent to know ahead of time what you are willing to spend. Thoroughly research advisors before meeting them, whether online or recommendations from friends and family. It is imperative to do your homework.
How much the client gets charged depends on the type of financial advisor he or she selects, how much money is under management, and the fee structure.
What Areas of Your Life Needs Help with Money Management?
Depending on your financial progress, you may or may not need extensive financial planning since most people have clear-cut financial concerns. Conversely, your finances may have unexpectedly become more complicated, either as the result of a new job or an unanticipated inheritance, while others just want personalized advice that helps them grow their savings or decrease debt.
A good advisor commits to devise a plan for all of your financial needs. Whether the client is interested in estate planning, insurance, debt repayment, or retirement plans, the best financial planner is capable of helping you with all of your financial concerns.
If your needs are more complicated than the average person, for example, delicate tax problems, or serious debt payment issues, then know that not all financial advisors carry the same arsenal of services. Determining your needs can be your guide in selecting a good match and whether or not it is worth it to speak to a financial advisor.
Types of Financial Advisors
Before diving into the different types of financial advisors, it is of utmost importance that you contemplate using a planner that is registered as a fiduciary. Once registered as a fiduciary, a financial advisor is required by law to act in your best interest. Their proposals & operations must truly reflect your financial intentions, risk tolerance, and timeframes. Their fees (as well as other fees) should be reasonable. Avoidance of exposure of their client's assets to excessive or unreasonable risk is a must. Not all advisors are bound by fiduciary duty. Some, for example, might suggest products that are expensive and pay them a higher commission.
In truth, there are numerous types of financial advisors and Pittsburgh wealth management planners. Those who work for families and individuals consist of mostly financial advisors. We would categorize these financial advisors as Certified Financial Planners (CFP), investment advisors and Registered Representatives (RRs), also known as stockbrokers. Many financial advisors play all of these roles, which is why it’s imperative that you learn the distinctions among them. Below are examples of some types of financial advisors.
Investment Advisor
The investment advisor is the official title for Registered Investment Advisors (RIAs). They are licensed by the Securities and Exchange Commission (SEC) and/or their state to offer investment advice and manage client portfolios. These advisors are held to the fiduciary standard.
Certified Financial Planner (CFP)
There are many unregulated or unlicensed financial planners out there. Keep in mind anyone can call themselves a financial planner
To convey credibility and accountability to the occupation, several industry organizations were formed to create formal certifications for financial planners. The most distinguished of them is the Certified Financial Planner Board of Standards, also known as the CFP Board.
To obtain the CFP certification financial advisors are required to:
Earn a Bachelor's degree and three years of relevant experience in the financial services industry;
Pass CFP Certification Examination.
Consent to abide by the CFP Board’s code of ethics & rules of conduct, which require them to always put their clients’ best concerns and interests first and to behave with integrity & accountability.
Complete 30 hours continuing education courses that are CFP Board-approved courses.
Registered Representatives
Formerly called stockbrokers, today, they are typically just called brokers. This is mostly because they generally make their money by selling life insurance and mutual funds to clients instead of trading securities. Their prescribed name is Registered Representative (RR), and they are licensed and regulated by the Financial Industry Regulatory Authority, or FINRA. They are commission-based financial advisors.
Financial Consultants & Wealth Managers
Financial consultants and wealth managers do not require licenses or certifications. However, they most often are licensed as investment advisors and brokers, and an increasing number of them are CFP professionals. Wealth managers focus on high-net-worth clients, ordinarily those with $5 million or more. A wealth manager’s purpose is far more comprehensive than just offering investment advice. Some of the more common offerings include Investment advice and management, General long-term financial planning, estate planning, trust services, strategic tax planning, family legacy planning, philanthropic planning, risk management, and insurance planning, retirement and legal planning, and banking services.
Robo-Advisors
These are low-cost, computer-based services that assist you in selecting and managing your investments. They build and manage your portfolio based on the guidelines you set out for your risk tolerance, goals, etc. Robo-advisors do not offer financial advice but may offer online planning options, etc. These options are secure and easy to use via web apps and cellular phones. Though faster and cheaper than traditional human financial advisors they lack the subjectivity needed to offer fully customized service. Some firms introduced hybrid Robo-Advisors that have some human assistance
Online Financial Planning Services
These services are similar to Robo-advisors but operate as traditional financial advisors. With this service, you get investment management and customized financial planning. This planning is done virtually, via telephone or video meetings. Anyone can use them as the minimum account balances range from zero to a few hundred thousand dollars. Some online financial planning services have Robo-advisors and human advisors that offer algorithm-managed portfolios with access to an actual team of advisors.
How Are Financial Advisor Fees Charged?
There are several ways financial advisors charge fees. Fee-only advisors charge a flat, hourly, or yearly fee. Commission-based advisors are paid through the investments they sell, and some financial advisors charge you a flat rate while others charge a percentage of your AUM. Take heed of those that are paid commissions by mutual funds which many consider a conflict of interest. Fee-based financial advisors earn a combination of a fee, plus commissions. The cost of financial advisors is written here as traditional human financial advisors and computer-based financial advisors.
Traditional Human Financial Advisors
Human financial advisors such as Certified Financial Planners, Registered Representatives, etc., use a variety of fee structures.
AUM Fee - traditional advisors normally don't accept clients with less than $.25M as the fee is usually approximately 1%.
Retainer Fee - This may be a fixed monthly or yearly fee of approximately $2,000 to $7,500.
Hourly Rate - This option is great for clients that don't necessarily need ongoing services. If you need help with a financial plan or setting up your children's college fund, this would be a good fit.
Financial Plan - Flat fee - If you simply want a financial advisor to build a comprehensive plan, you can get one ranging from $1,000 to $3,000. No other services are offered.
Commission - This cost depends on the actual investment. Usually, commission-based financial advisors only offer investment management for a one-time charge of about 3% to 6% at the sale or purchase of the fund.
Robo-advisors
Robo-advisors generally charge an Assets Under Management (AUM) fee of 0.25% to 0.50%, which works out to approximately $250 to $500 annually on a $100,000 account balance. A few Robo-advisors do not charge management fees.
Can I Afford a Financial Advisor?
Many people think they cannot afford a financial planner. This belief is founded on the misconception that all advisors are unwilling to work with you unless you already have millions in the bank. Financial advisors have the potential to be expensive. Financial advisors must charge a particular sum to make a living doing what they do. Consequently, the choice to hire a financial advisor requires thoughtful cost/benefit analysis. Several firms try to make financial planning an accessible solution. As mentioned earlier, many advisors charge reasonable hourly fees for a plethora of services. Another option is to teach yourself investing and money management via the internet or books, et cetera. Focus on the basics
Hidden Costs
20% of investors are unaware of what they pay in investment fees, while another 10% of clients do not realize that they even pay fees. All clients should know what the financial advisor costs so as to determine if the service is worth it. Sometimes there are numerous other fees not paid to the broker that investors are not made aware.
To verify what you are paying ask your financial advisor what you “all in” cost is. If they tell you there are not hidden fees then verify via third party using, for example, Yahoo Finance. Check your statements to see what other fees are included.
In conclusion, clients must do their research. The cost of a financial advisor varies, and some recommend that clients select ones that charge an AUM fee, fixed fee, or hourly fee. Consider using an advisor that holds the designation of a fiduciary financial advisor who puts your interests first. Whether you hire a traditional professional or use a DIY computer-based option there are plenty of ways to invest in your future.
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