Hiring a Financial Planner

Estimating the costs of an investment advisor can sometimes feel as daunting as doing financial planning. Some financial advisors charge fixed fees; others deal in variable percentages. There are six different ways that financial planners charge their fees. Learn what they are so you can find the right professional and budget for important advice and hands-on investment management to help you meet your financial goals.

Percentage of Assets

One of the most common ways with which financial planners, financial advisors, or investment advisors will charge you is a percentage of the assets that they manage on your behalf. A typical asset management percentage fee can range from 0.50% to 2.0% per year. In general, the more assets you have, the lower the percentage of your total assets they will charge.

Many investors like this structure, as fees are debited right from their accounts. No check has to be written, and the fees don’t have to come out of your monthly budget. Additionally, fees debited from tax-deferred retirement accounts, such as IRAs, are paid with pre-tax dollars, which can slightly reduce your account balance and associated taxes upon withdrawal, making them highly beneficial for those in retirement.

When you hire a planner who is compensated in this way, find out if the planner is providing investment management and financial planning or just investment management. Expect to pay a higher fee if the planner is providing full-service financial planning along with investment management. 

You will also want to ask whether the advisor is fee-only or fee-based. Fee-only advisors only charge a fee based on your assets; they don’t earn additional commissions based on product sales. They have a fiduciary responsibility to act in your financial best interests, so they are more likely to use low-cost funds in your account that minimize your overall cost. In contrast, fee-based advisors may be able to collect commissions in addition to the fee charged on assets.

The National Association of Personal Financial Advisors (NAPFA) has copyrighted its “fee-only” logo. In addition, member advisors must submit documentation and take an oath that they do not sell any investment or insurance products. NAPFA can be a great resource for finding a “fee-only” financial planner or investment advisor.

With an asset management percentage fee, an advisor makes more money as your account value increases. If your account value decreases, she will make less money. For this reason, your advisor will have an incentive to grow your account and minimize losses.

Some planners have devised interesting variations on this payment option, such as charging a percentage of net worth (with the goal of helping you increase your worth) or a percentage of your adjusted gross income (with the goal of offering career counseling to help you boost your income). 


Some financial planners charge a flat rate or a percentage of the purchase or sale of an investment you make through them. Known as commissions, these payments can range anywhere from 3% to 8.5% of the investment price and generally take two forms:

  • A front-end load: An advisor who uses this pricing structure will charge you upon the purchase of an investment. You would give the investor an amount to invest, and a flat fee or a percentage of that amount would get withheld as a financial planner commission.
  • A back-end load: You wouldn’t get charged when you buy the investment, but a flat fee or percentage of your investment would get deducted when you stop holding the investment.

Commissions may also be paid directly to the advisor from the investment company, as in the case of the sale of many non-publicly traded real estate investment trusts (REITs). Ask for a clear explanation of how much the financial advisor will cost and from whom it will receive the fee if you buy the investments they recommend.

This option may seem enticing because the cost doesn’t come out of your pocket and the financial planner’s commission is not tied to your total assets. But some advisors who charge in commissions may be compensated for product sales, which may motivate them to recommend that you buy an expensive investment that isn’t necessarily right for you. For this reason, it’s important to scrutinize whether the advisor is an honest broker or simply a good salesperson looking to close a deal.

Combination of Fees and Commissions

Many advisors today collect both fees and commissions. These advisors are called “fee-based.” They may, for example, charge a small percentage based on the assets they manage plus an additional flat rate or percentage in commissions when you start or stop holding an investment.

The benefit of this pricing structure is that it is neither tied exclusively to asset value or to your investment purchase decisions. Moreover, advisors won’t be motivated exclusively by-product sales, since a portion of what they earn is based on your assets.

Still, it’s important to ask how much the financial advisor’s services will cost in fees versus commissions. As in the case with financial planners who charge according to a commission-only model, do your due diligence and select an advisor whom you trust.

Hourly Rate

Advisors who charge according to this fee model bill you a certain amount for each hour of advice they provide. While the costs can add up if you need an advisor who will hold your hand throughout the investing process, paying by the hour can be a great choice if you are willing to implement the advice on your own.

For example, you may pay a financial advisor an hourly rate to tell you how to allocate the investments in your 401(k) plan. You can then make the changes they suggested on your own to avoid incurring additional financial advisor costs.

Just like attorneys, or accountants, hourly rates will vary widely from planner to planner, typically anywhere from $150 to $400. Expect to pay a higher hourly rate for experienced advisors or advisors who have an area of specialty. Lower rates will be charged by less experienced advisors.

Since an hourly rate is not tied to the value of investments, or to the purchase of any specific investment, you can generally feel confident that you will receive objective advice. However, you will pay out of your own pocket, so keep your costs low by limiting the help you request from them and coming to planning sessions with the questions that need answering already prepared.

To find an advisor who charges an hourly rate, check out the Garrett Planning Network, which offers a search service to connect you with a national network of planners who offer advice at an hourly rate.

Flat Fee

When you need a financial planning project completed, it’s useful to outsource it to a financial planner for a one-time cost. For example, when creating an initial retirement plan, it may make sense to pay a flat fee to have someone crunch the numbers and help you understand everything that goes into creating an accurate retirement plan projection.

The specific costs vary by project. The cost for a financial advisor to put together a retirement plan might be anywhere from $700 to $3,500, for example.

Although you will pay out of your own pocket, the great thing about this fee model is that it makes it easy to budget for getting financial help. In addition, the flat fee is neither tied to the value of your investments nor to the purchase of any specific investment.

However, to aid in budgeting, ask for the fee upfront and get a clear description of what will be covered by that fee. For example, inquire whether (and how many) follow-up meetings or questions are included in the fee.

Another flat-fee sort of model, XY Planning Network offers a subscription fee plan. And it’s not the only oneā€”more and more advisors are breaking down annual financial planning fees into monthly subscription costs, which may be easier on your wallet.

Retainer Fee

According to this pricing structure, you would be periodically charged a flat fee at regular intervals (quarterly or annually, for example) to retain the ongoing services of a financial advisor. You may benefit from ongoing help if you have a more complex situation, such as ongoing stock options to be exercised, a small business, rental properties, or the need to draw a regular income from your investments.

The specific fee depends on the scope of services provided and the experience level of the advisor. While thorough financial planning can range from $2,000 to $10,000 per year, planning and investment management can push you into the annual range of $5,000 to $30,000.

For that price, you can generally be assured that your planner will not advise against your best interests since a retainer fee is not tied to the value of investments or the sale of specific products. But you will have to pay up directly to the advisor.

After visiting one of these financial planners and sharing the complexity of your situation, ask what your retainer fee would be, at what intervals, and the services included in that fee. A written contract detailing the fee and services is usually provided.

How to Find out Your Advisor’s Fees

Fees can vary under each of these compensation structures. The most accurate way to estimate financial advisor costs is to ask your intended planner for a clear explanation of compensation before you hire him.

Look for an honest, straightforward answer, and steer clear of advisors who try to avoid the question, tell you not to worry, or imply that services are free. Online advisor search engines, such as Financial Planner Association, allow you to search by specific criteria, such as what compensation structure an advisor uses.

As you try to learn how much a financial advisor’s services cost, keep in mind that the terms financial advisor, investment advisor, and financial planner are often used interchangeably, but a title alone may not provide an accurate depiction of the services offered. Always ask about the types of planning or advice a financial planner provides to ensure that he can help with your specific request.

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