Understanding Financial Advisor Costs: How Much Does a Financial Advisor Cost in 2024?

When you’re looking for financial advice you’ll typically ask, ‘How much does a financial advisor cost?’ The answer isn’t one size fits all, so this article will break down the costs involved with hiring a financial advisor.

From fixed fees and asset-based models to hourly rates, we’ll cover how these cost structures work and which might be right for you in 2024.

Expect to find practical advice to help you choose your financial advisor services without the financial mumbo jumbo.

• Financial advisors charge various fees, such as fixed fees ($2,000 to $20,000 yearly), asset-based fees (up to $20,000 annually depending on portfolio size), or hourly rates ($275 to $550 per hour), influencing overall financial planning costs.
• The spectrum of financial advisory services includes investment management, personalised financial planning and complex wealth management and estate planning, each with fees based on the service and client goals.
• Payment models for financial advice are fee only as commisions payment models have been banned. Hybrid Fee models comprising asset based fees combined with fixed fees are popular for their flexibility and cost savings for investors with large, growing portfolios.

The cost of a financial advisor is determined by many factors, including the fee arrangement.

Financial advisors charge their clients through fixed fees only or a percentage of assets under management.

These models vary in price and transparency but all play a part in your financial journey.

The range for financial advisors who charge flat fees is $2,000 to $10,000 per year, some advisors have more bespoke fee structures. Advisory fees based on assets under management can range from $3,000 to $20,000 per year and go up as your investment portfolio grows and the level of complexity of the work being undertaken.

A fixed fee arrangement is a popular choice for those who want transparency and control over costs. Under this model financial advisors charge a flat annual fee, usually $2,000 to $20,000, for their services.

This financial advisor cost covers a comprehensive financial plan that doesn’t require ongoing management or oversight, also known as financial advice fees.

If you want a very simple financial plan with no ongoing management or if you’re looking to make a one-off financial decision the fixed fee can be a lower cost than for a comprehesive plan but your advisor should clearly scope the advice and undertake a thorough analysis of your current situation to ensure that the advice is appropriate.

Asset based pricing is another fee structure in financial advice. Under this model financial advisors charge a percentage fee based on the total assets they manage for you. This aligns the advisor’s success with your success as they have a vested interest in growing your investment portfolio.

However, the asset-based fee structure is not without its downsides. Larger investment balances can pay much higher fees than smaller ones for the same services. For example a $2 million balance could pay 10 times more than a $200,000 balance.

Finally some financial advisors charge an hourly rate for their services. This model is good for clients who want specific advice or guidance on a one off basis. Experienced financial advisors usually charge between $275 to $550 per hour for personal financial advice.

This flexible fee structure can be particularly beneficial if you only need advice on a specific topic or if you’re looking to make a one-off financial decision.

However, it’s essential to remember that while hourly consultation costs might seem cost-effective, they can quickly add up if you require ongoing financial advice or ongoing advice on other matters.

Financial advisory services cover a broad spectrum, from asset management to comprehensive wealth management. Each service has its own fees and complexities that can impact the cost to the client.

Knowing the full range of services offered by financial advisors is key to making an informed decision. Whether you want a financial adviser to:

• manage your investments
• help plan your financial future
• provide tax planning and preparation services
• offer retirement planning advice
• assist with estate planning
• provide insurance planning and advice

Knowing what to expect can help you choose the right advisor and manage your budget effectively.

Investment management is a service offered by financial advisors. Under this service advisors can manage your investments actively or passively, each with its own fee structure.

Actively managed portfolios will incur higher fees as a team of people are constantly adjusting the investments. Passively managed portfolios will incur lower fees as there is minimal buying and selling, reflecting a long term investment approach.

In addition to these costs investment management fees can also include a fixed investment platform fee for managing investments, separate to portfolio performance.

Personalised financial planning is another common service offered by financial advisors. This service is tailored to include meetings for:

• retirement savings
• planning education costs for children
• budget creation
• a complete financial plan

However, personalised financial planning services can incur additional fees for regular reviews and adjustments to keep them aligned with the client’s changing goals.

Make sure you consider these ongoing costs when choosing your financial advisor and planning your budget.

Wealth management and estate planning services are usually sought by individuals who have:

• a high income
• a significant portfolio
• an inheritance
• a large insurance payout

These services involve more complex and comprehensive financial planning which means higher fees.

But while these services cost more, they can be a huge help to individuals with complex financial needs. By taking the complexity and stress off your shoulders these services allow you to focus on other important things in your life.

When it comes to financial advisory services one size doesn’t fit all. Different payment models suit different client needs and understanding these will help you find the right one.

Traditional human financial advisors use three main payment structures: fee-only, asset based and a hybrid model

Each has its pros and cons and the right one for you will depend on your individual financial goals and preferences. Let’s take a look at each to help you decide.

Fee-only advisors are paid directly through AUM or directly from your bank account or credit card and aim to have fewer conflicts of interest.

They charge an AUM fee for investment management or a flat fee for financial planning services.

Ultimately the choice comes down to your comfort level and your personal financial goals.

In the digital age, robo-advisors have entered the financial advisory scene. These automated software platforms simplify the process of investing by using online quizzes to match an investment strategy to your risk tolerance.

In general robo-advisors are designed to provide simple investment advice.

Robo-advisors charge an assets under management (AUM) fee of 0.25% to 0.50% which is less than the 1% fee of traditional in-person financial advisors.

But while robo-advisors may be good for beginners and those with simple portfolios, they may not provide the personalised financial plans that individuals with complex and detailed financial needs require.

In the ever changing financial landscape hybrid fee structures have become popular. This model combines an ongoing fee with a percentage-based fee so you can pay a lower percentage-based fee during growth phases and then switch to a flat fee when the portfolio reaches a certain size.

Hybrid fee structures are flexible and can be good for investors with big portfolios that are growing fast. As with any fee model you need to consider the following:

• Your investment goals
• Portfolio size
• Potential growth
• Market risks

Justifying the cost of a financial advisor can be tough especially for those with simple financial needs. But for those with complex financial situations or big asset growth potential the value of professional advice can exceed the cost.

Most financial advisors can add significant value to a client’s wealth by managing cash flow and investments.

So before you dismiss the idea of hiring a financial advisor based on cost alone think about the return on investment their expertise and planning could deliver.

Knowing how much a financial advisor costs is only half the battle. Finding and choosing the right financial advisor is equally if not more important.

This process involves understanding professional qualifications, assessing the advisor’s experience and reading the Statement of Advice (SOA).

Start your search by asking friends or family, checking professional associations and online directories. These will give you valuable information and guidance. Make sure to check the advisor’s reputation, their specialties and the type of clients they work with.

Professional associations like the Financial Advice Association Australia (FAAA) can be a great resource in your search for a financial advisor. They have high professional and ethical standards so you can filter out the good from the bad.

By using directories from the FAAA you can find financial planners that meet your criteria and have more confidence in the qualifications and experience of the advisors you are considering.

Qualifications and experience are a key part of the selection process. Professional associations and the Financial Advisers Register can give you insight into a financial advisor’s qualifications, such as the FAAA’s Certified Financial Planner (CFP) certification which is a global standard for professionalism and ethics.

Also note that the cost of financial advice can be influenced by:

• the type of advice
• the complexity of your financial situation
• the experience level of the advisor
• their chosen fee method.

Before you sign on the dotted line you must read the Statement of Advice (SOA). This document outlines the services, fees and the advisor’s understanding of your situation.

A personal financial plan may have a specific fee called a Statement of Advice fee with the average cost of an SOA around $6,500. By reading the SOA you can make sure the services delivered align with your financial planning needs.

As you consider the cost of financial advice note that there are deductions for investment advice and financial planning services. The Australian Taxation Office (ATO) in Australia allows specific deductions for investment advice and financial planning services. This can be a tax benefit for individuals who seek professional advice.

These deductions are for income generating investments so fees for investment advice may be tax deductible. This doesn’t mean the cost of financial advice goes away but it can help offset it.

In today’s complex financial world knowing the cost of a financial advisor is key. The cost of financial advice comes in different forms: fixed fees, asset based pricing and hourly rates each suited to different clients and preferences.

Whether you’re looking at investment management, personal financial planning or wealth management, knowing the costs will help you make a decision.

The key is to find an advisor that aligns with your financial goals and has a value proposition that justifies their cost. After all the goal is not to spend money on financial advice but to invest in your future.

Understanding how much a financial advisor cost can help you make an informed choice that benefits your long-term financial health.