Costs Associated with Hiring a Financial Planner/AdvisorSubmitted by Heath Wealth Management - Elijah Heath on January 16th, 2021
Costs Associated with Hiring a Financial Planner/Advisor
When considering whether it is time to hire a financial planner to manage your accounts, many people are understandably concerned about the costs involved. Financial planners typically charge a flat fee, a commission-based fee, or have a hybrid approach.
For planning and evaluation purposes, you should ask for a fee sheet when interviewing financial planners. If you’re just starting your search, here’s a list of 10 questions that cover a wider variety of topics in addition to the costs associated with hiring a financial planner.
Full Disclosure of All Fees
Ask about all associated costs when you choose a financial planner with full disclosure of current and future fees.
If your investments are in a fiduciary account, all your advisor appointments, advice, and phone calls may be included in the flat fee. This cost can vary, but on average, fees should range between 1% to 1.5% per year. In some cases, you could be paying upwards of 3% per year. Robot fiduciary accounts may be as little as .5% per year or less.
If an advisor is charging less than 1%, find out what level of service you will be getting. How often will you be able to sit down with them to discuss your investments? Will they be contacting you regularly with updates and information or are they only available if you schedule a call with them or when they have an investment product to sell?
Picking the right account and advisor is not always about choosing the cheapest rates. The sound financial advice you receive from your advisor and good customer service are very important considerations.
Some additional fees to watch for:
Creating your financial plan – is this included or do you have to pay for it separately? Some financial planners may charge an extra $1000-$2000 to create your plan.
Annual review of your accounts – is your advisor charging a separate fee to conduct an annual review of your accounts?
Annual fees – if you are paying a flat fee for managing your accounts, is there an added annual fee?
Paying twice - are you paying a commission and a fee for the same accounts?
When reviewing the fee sheet, there may be a list of fees you could be charged, some of which may never impact you. Others are charged when certain situations occur, such as a fee to transfer your account to your beneficiaries when you pass away. Read through the entire list and be aware of fees that will affect you and which ones are less likely but could be charged.
Flat Fees May Not Always Be the Best Choice
Some financial advisors may quote a flat fee to manage your accounts, for example, $10,000/year. Based on the size of your investments, this fee may be reasonable and gives you predictability in your overall budgeting plan. But keep in mind you pay this same flat fee whether your account does well or does poorly.
For some investors, it is possible the minimum balance required on a fiduciary account is more than they have been able to save when they first begin investing. In such cases, a commission-based account may be a better starting point.
For example, a financial advisor may start a young client in a commission-based account with $10,000 in a mutual fund. A fiduciary knows this is a better choice initially and helps the investor set goals to add to the account every month as their income increases. Through sound financial advice and excellent customer service for that young client, a trusted advisor ensures their commission is spread out over a longer-term, benefitting both parties.
Types of Fees You May Encounter
Fees are not standard across the financial industry and every firm has a different fee sheet. Some will provide it without asking, and some try to keep it hidden. Look for a firm that is upfront and transparent with its fees.
Fiduciary accounts may have ticket charges or small trade fees that can add up if there are a significant number of trades. It is important to ask if the advisor is paying these ticket charges. If so, the advisor may be reluctant to move your money when necessary in order to avoid paying that fee. It is important to know what fees are involved on your end and theirs.
As you compare fee sheets between advisors, it can be difficult to compare “apples to apples”. At Heath Wealth Management, CERTIFIED FINANCIAL PLANNER™, CFP®, Elijah Heath prefers inclusive fees versus charging clients multiple fees for extra services. He provides a service fee sheet upfront to all clients with potential fees you could pay and explains the ones you can expect to pay.
If you are making changes between financial advisors and firms, sometimes your existing firm will charge a fee for you to leave, and the new firm charges you a fee, too. If you are working with a fiduciary, they are required to disclose this information to you and only make recommendations that are in your best interest. Even with these kinds of fees, if your accounts will do better by moving them then it is good to simply be aware of the fees.
Financial Advisors May Receive Compensation in Several Ways:
Commissions. A financial planner, a registered representative of a brokerage firm, or insurance agent (and their representatives) may receive a commission for each financial product purchased by clients.
Fees Based on Account Value. Fees can range from 0.5% to 2% of an account’s value, on average. Usually, larger accounts have a lower fee percentage on the value of the account. Unlike a flat fee account, the fees grow and decrease proportionally with the balance of the account.
Hourly Rates. Some advisors may charge based on hours worked, similar to an accountant. For example, a CFP® could charge between $100-$300 per hour depending on the work involved. Some clients consider this advice to be more objective since the advisor is paid whether you take their recommendation for investment or not.
Negotiated Fee for Service. Clients with a specific need, such as creating a retirement portfolio or budget, may choose to pay a negotiated, fixed fee for specific deliverable services.
Combined Commissions and Fees. Many financial advisors receive a combination of fees and commissions. When working with a fiduciary, they are required to explain their fees and only offer advice that benefits their clients.
Remember, Cost is Only One Variable
When considering the right financial planner for your future, cost is one variable that will factor into your decision. You want to be certain you understand the type of advisors you need for your circumstances. Even areas such as expertise and experience should be weighed in.
Ask whether your financial planner follows the Fiduciary Standard or the Suitability Standard.
- The Fiduciary Standard means your advisor must always recommend products and advice that are in your best interest, not their own.
- The Suitability Standard means products must be suitable for your circumstances but gives the advisor the opportunity to recommend products that pay him/her the highest commission fee.
Consider checking their references and ask good questions about what other clients like or dislike about the services they receive, how they would rate the communication between themselves and their advisor, and whether they felt the advisor listened to their needs and made recommendations they could understand.
Make sure you feel comfortable with your financial advisor and if they seem trustworthy. You may check information about financial advisors through FINRA's BrokerCheck and the SEC's Investment Adviser Public Disclosure databases. If you are working with a CFP® professional, their Board disciplinary history can be found through their Verify tool.
Your relationship with your financial planner could last several decades and even continue through to your heirs. Sound financial advice balanced against reasonable costs and fees you pay will reassure you that your investments are doing their job in protecting you and your family’s future.
Call us to learn more, ask questions about your specific circumstances, and determine if we are the right fit for you. Our phone number is 813-556-7171. We can also be reached by email at Elijah.Heath@LPL.com.
Elijah Heath, CERTIFIED FINANCIAL PLANNER™ (CFP®), is a fiduciary with an ethical obligation to provide information, products, and services in your best interest, not what earns him the best fee or commission. Heath Wealth Management wants to be your advisor for life so you, your children, and grandchildren all benefit from the relationship.