This article is a guest post written by Scott Frank, founder of Stone Steps Financial.
Scott and I became friends after meeting at the XY Planning Network conference and I asked him to write some thoughts on what you can expect to pay a financial advisor as a guest topic for this site.
Take it away, Scott!
Financial advisors get paid a number of different ways, which means it can sometimes be hard to know exactly what to expect when you hire them. Here, you’ll find a quick and handy guide to the different sources of compensation that financial advisors receive.
The three main ways financial advisors are compensated.
Compensation comes in several forms. No matter how a financial advisor gets paid, however, pricing can vary depending on location, her certifications and experience, and the balance between supply and demand for these services.
Those factors aside, here are the three basic categories of compensation styles you’ll see when shopping around for a financial advisor.
1. Commission-based.
These financial professionals are paid when they sell financial products. They get a cut whenever they’re able to convince clients to invest in certain mutual fund, purchase insurance, or other financial products to which they have ties.
As the client, you won’t pay the commissions- the company who owns the product pays. Whoever pays, however, the point is this: some experts warn against hiring commission-based advisors since they may tend to steer you towards the products they represent.
2. Fee-only.
This method of compensation is very straightforward: you pay fees for the services you get. There is no incentive for the advisor to push a certain fund, annuity or life insurance product because there are no commissions.
Fee-only advisors are commonly known to have a broader perspective on clients’ financial snapshot because they aren’t limited to the products they represent…the field is wide open as to choices they make to serve your needs.
You may pay a flat fee for the service you request, or sometimes you pay by the hour. Others charge a percentage of the assets they’re managing for you, which is usually around 1%.
Expect hourly rates to cost between $100 and $400. A single consultation can start at $500.
Coming up with a retirement plan can take an advisor more than a full day’s work, so expect that fee to be over $1,000. A basic financial plan can run around $400 to $500. Keep in mind, however, these prices will vary by location, experience, and the complexity of the client’s financial world.
3. Fee-based.
Also called “Fee and Commission”, this method of compensation combines the other two methods for a blended approach.
These advisors might charge a fee for their services, but also get compensated when you invest in or purchase certain products. Many of the big companies pay their employees on commission but you’ll also pay a fee for their services.
You could say it’s either the best of both worlds or the worst. You’ll end up paying fees but also risking the possibility of receiving biased advice because the advisor stands to benefit if you put your money in commissioned products.
The Bottom Line
Whether you choose fee-only, fee-based or commission-based advice, financial advisors are in demand. Advisor pay is climbing and the outlook is good for these professionals, so one thing to keep in mind is that a fee-only advisor who charges a percentage of your assets may be a good option for some people. The other thing to remember is that fee-only advisors will most likely be the ones to offer unbiased advice.
The median pay for 2015 for financial advisors was $89,160 per year, and the growth in this field is tremendous. Don’t expect their services to come dirt cheap. If you want to hire one, though, shop around and make sure you’re getting your money’s worth. Clients usually find the fees to be well worth the advice they get, especially over the long haul.
About the Author: Scott Frank is the founder of Stone Steps Financial, a fee-only financial planning firm located in Encinitas, California. Scott started Stone Steps to help young professionals and families understand their financial lives and position themselves to reach their fullest potential.
Resources
- Occupational Outlook Handbook for Personal Financial Advisors.Bureau of Labor Statistics. Retrieved 425/2016 from http://www.bls.gov/ooh/Business-and-Financial/Personal-financial-advisors.htm#tab-1