top of page

What Is a Reasonable Percentage to Pay a Financial Advisor?

  • Michael DiBartolomeo
  • Dec 3, 2021
  • 3 min read

Updated: Feb 24, 2022

Your financial consultants in Pittsburgh are one of the most essential pillars in your planning and investment journey. You are getting qualified expertise in various areas, such as investment management and recommendations, estate planning, tax planning, budgeting, etc.


It's a lot to digest, and there is an undeniable value to the client. As someone new to the whole industry, you may find yourself asking, “what is a reasonable percentage to pay a financial advisor?”


Reasonable percentage to pay your Financial Advisor

Reasonable percentage to pay your Financial Advisor


The short answer is there is no hard and fast rule to how this is calculated. First, you need to remember that not all advisors are paid in the same way. You find that their compensation schemes fall under one of three broad categories, which are:


  • Fee-based – Fee-based advisors are incredibly common, and they are the most relevant to the question you're trying to answer here. There is no commission or base to speak of here, as those who fall under this group exclusively earn through the assets that they manage for their clients.

There is typically an agreed percentage that the client turns over to the advisor as compensation for service. Additionally, you may find that an hourly or per project charge is affixed to the fee.


  • Commission-based - This is exactly what it sounds like. When advisors get clients to buy into the various products that the business may offer, they receive a commission for each sale based on their recommendations.

  • Hybrid - These financial advisors have some mixture of the two models described above. You find that fee-only advisors do not accept commissions, but persons who get paid under this scheme have more reliable income than others.


You may wish to ask your advisor how compensation is provided, which should give you some more insights on planning accordingly.


Assets Under Management (AUM) Fee Structure


The assets under management are exactly what the term sounds like. Typically, your financial advisor has responsibility for some or all the assets that make up your portfolio. The percentage that is charged to the client often depends on the total dollar value of the assets managed. Persons with a higher net worth or a greater number of AUM pay a lower percentage.


So, on a $1 million portfolio, it's very typical for investment advisors to charge a 1% annual fee. It may sound small, but remember that this equates to $10,000. If an advisor should manage ten such portfolios, it results in a huge payday.


As the asset value increases, you may find the percentage going as low as even 0.25%. On the flip side, a smaller portfolio is likely going to require a greater percentage. So, beyond acquiring a greater number of assets for your financial freedom and security, you contribute to a less impactful fee structure.


Online Advisors


It's important to highlight that all the fees mentioned above are based on human advisors. Now, you may ask what other kind of financial advisor is there? Well, robo-advisors have been gaining traction for some time.


Some of the online alternatives are mostly automated, while others only seem to function on an AI structure. Whatever the case may be, the fee structure here is typically more attractive than going the traditional advisor route.


It would not be uncommon for you to have an annual payment of 0.30%. Even when there are flat fees in the mix, they are never super expensive. However, the prices can change dramatically depending on the extent to which you need financial advice.


Don’t Forget Other Fees


Remember that investments are total packages, meaning the fees that your advisor may charge are not the only ones you must deal with. In determining the feasibility of working with a certain provider, you may want to tally up these fees first.


For example, custodial fees, brokerage, and other third-party charges can creep in, making the total package a little bit more unattractive. Some asset types generate specific costs. Mutual funds are a perfect example, as they tend to run between 1% and 2% off your asset value annually.


Remember that the advisor you're working with typically understands how the fee structure works and what the total picture is going to look like. As you initiate discussions to start taking advantage of this service, you may want to raise whatever questions are swirling around in your mind about the extent of the costs you may incur.

 
 
 

Comments


Check the background of your financial professional on FINRA's BrokerCheck.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by Phase Marketing LLC to provide information on a topic that may be of interest. Phase Marketing LLC is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Securities offered through LPL Financial. Member FINRA & SIPC.

Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd. and The Kelley Financial Group are separate entities from LPL Financial.

Contact

The Kelley Financial Group

Phone: (412) 528-1920

Fax: (412) 528-1920

1605 Carmody Ct #301

Sewickley, PA 15143

  • YouTube Social  Icon
  • Facebook Social Icon
  • LinkedIn Social Icon

The LPL Financial representative associated with this website may discuss and/or transact securities business only with residents of the following states: AR, CA, CO, DC, FL, GA, HI, ID, IL, KS, MD, MI, MS, NC, NH, NY, NV, OH, OK, PA, SC, TN, TX, VA, WA, WI, WV, and VT.

 

LPL Financial, Forbes and SHOOK Research are separate entities.

The Forbes Best-In-State Wealth Advisor ranking, developed by SHOOK Research, is based on in-person and telephone due diligence meetings and a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK Research receives a fee in exchange for rankings.

The Forbes ranking of Top Next-Generation Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative and quantitative data, rating thousands of wealth advisors born in or after 1980. Advisors are interviewed by telephone and in person to evaluate service models, investing process, experience levels and integrity. Additional factors considered include compliance record, client retention, revenues produced for their firms and assets managed. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receives a fee in exchange for rankings.

© The Kelley Financial Group LLC.

bottom of page