The Real Cost of a Financial Advisor

It’s probably less than you think

Fact checked by Timothy Li
Reviewed by Charlene Rhinehart

Despite popular belief, financial advisors aren’t just for the wealthy. Many people avoid seeking professional financial guidance because they’re concerned about the cost. However, the real question often isn’t “Can I afford a financial advisor?” But “Can I afford not to have one?”

If you’re living paycheck-to-paycheck, struggling to build retirement savings, or finding it difficult to reach your financial goals, professional guidance might be exactly what you need. Research shows that working with the right advisor can greatly improve your chances of meeting your financial objectives and potentially save you money in the long run.

Key Takeaways

• Financial advisors typically charge between 0.5% and 1.5% of assets they manage for you, with flat fees ranging from $1,000 to $3,000 for specific services, and hourly rates from $150 to $400.
• Fee structures vary widely—from fee-only to commission-based to percentage of assets—making it important to understand how your advisor is compensated before signing an agreement.
• The value of an advisor extends beyond investment management to include financial planning, tax strategies, estate planning, and retirement preparation.
• When evaluating cost versus value, consider that advisors can help prevent costly mistakes, improve your tax strategies, and help create better tailored investment portfolios.
• Before hiring an advisor, verify their credentials through official channels like the Securities and Exchange Commission’s (SEC) Investment Adviser Public Disclosure website or the Financial Industry Regulatory Authority’s BrokerCheck.

Why Consider a Financial Advisor

Understanding what financial advisors offer helps explain their fee structures and potential value. Financial advisors provide far more than investment management—they offer comprehensive guidance to help you achieve both short- and long-term financial goals.

Core Services Behind the Fees

Investment management: Advisors develop and maintain investment strategies tailored to your goals and risk tolerance. This ongoing service typically involves percentage-based fees of roughly 0.5% to 1.5% of assets under management with some variation at each company.

Planning: Most advisors offer financial planning that includes retirement strategies, tax optimization, estate planning, and education savings. These services may be included in asset-based fees or charged as separate flat fees ($1,000-$3,000) or hourly rates ($150-$400).

Specialized expertise: Advisors who are certified financial planners (CFPs) or chartered financial analysts (CFAs) provide specialized knowledge for complex situations such as the following:

• Business succession planning
• Estate tax strategies
• Risk management and insurance planning
• Tax-efficient investment strategies
• Retirement distribution planning

When Their Expertise Provides the Most Value

Financial advisors become particularly valuable during major life transitions or complex financial decisions:

• Preparing for retirement
• Receiving an inheritance or windfall
• Managing business sales or career transitions
• Navigating divorce or loss of a spouse
• Developing estate plans
• Handling tax difficulties
• Planning for education expenses

Professional Standards and Trust

The most respected advisors operate under a fiduciary standard, legally requiring them to put client interests first. This typically applies to the following:

• Registered investment advisors (RIAs)
• Fee-only advisors
• CFPs

Understanding these services and qualifications helps explain why advisor fees vary and how to assess whether their cost aligns with the value they provide for your specific situation.

How Are Advisors Paid?

There are essentially three types of financial advisors: fee-only planners, fee-based planners, and commission-based planners.

Fee-Only Advisors

A fee-only advisor can cost you more money upfront. If your advisor charges an hourly rate of $200, and it takes them five hours for your first meeting to set up your plan, it can be daunting to pay the initial $1,000. However, while the first two meetings with your advisor will be costly because of the amount of work they do to set up a personalized plan for you, your follow-up meetings and check-ins should be much shorter and inexpensive.

Note

A fee-only advisor is much more likely to be an RIA, meaning they must provide you with financial advice that is based on what would be the best for your unique financial situation, rather than give you advice that will help them sell products.

Percentage-Based Advisors

A financial advisor who charges a percentage based on the assets they manage may be another option. This fee can range from 0.5% to 1.5%. The minimum portfolio amount you’ll need can vary, and you’ll want to work with someone who is focused on those at your level of investing.

This might seem like a huge price tag, but your incentives are aligned with your advisor: the more your investments grow, the more money they earn from their percentage.

However, many believe that a 1% fee is too damaging to growth, particularly for accounts under $1 million. Negotiating a smaller percentage, or sticking to flat or hourly fees are ways to address this.

Flat-Fee Advisors

You may want to consider hiring a flat-fee advisor for certain services, such as an estate plan. The will and other documents can then be created by a lawyer based on the plan. If an advisor charges you a set rate for the service, you won’t have to worry about them racking up hours or whether you need to make any simple modifications.

Important

Robo-advisors usually offer the lowest management fees, but you won’t be able to discuss investment strategy with a professional unless you pay a higher fee or have a larger account.

How Much Can Financial Advisor Save You?

Hiring a financial advisor can be a major expense. When you already have a tight budget, it can seem like a waste of money, and for some it may be. However, if you pay on average $1,000 to $2,000 a year on an advisor, you might quickly make this back with careful tax planning, let alone all the other services they offer. Whether a financial advisor is right for you and worth the cost, depends on your unique situation, and your level of financial knowledge.

Calculate the benefits before completely ruling out hiring a financial advisor. Don’t be afraid to ask for an information-only meeting that allows you to get a better understanding of what this specific advisor offers—you don’t want an advisor who can’t immediately justify their fees.

Finding the Right Fit

To get most value from a financial advisor, you can do the following:

1. Request an initial consultation to understand their services and approach
2. Ask for references and read reviews from current clients
3. Verify credentials through official channels (SEC, FINRA)
4. Ensure their fees align with your needs and portfolio size
5. Discuss with them the specific ways they can improve your finances

The goal isn’t to find the cheapest advisor, but one whose services provide value that’s more than their costs.

What’s the Difference Between a Financial Planner and a Financial Advisor?

There’s a significant overlap between the two. A financial planner works with you to identify and create ways to meet your long-term financial and life goals. Some offer advice, while others will help you find the right investments and add them to your portfolio.

A financial advisor can apply to those who help you plan and also to those who manage the money in your portfolio and investment accounts. Financial advisors can include brokers and investment managers. “Financial advisor” is the more generic term. All financial planners are financial advisors, but not all financial advisors are financial planners.

How Do I Find an Advisor Who’s Trustworthy?

Reach out to friends, family members, and colleagues who have experience working with financial advisors, particularly those whose financial situations are like yours. Your employer’s 401(k) or retirement plan provider can be another valuable resource, as they often have relationships with advisory firms.

Professional organizations can also help in your search. The National Association of Personal Financial Advisors maintains a database of qualified advisors you can search by location and specialization.

How Do I Know My Financial Advisor Is Legitimate?

You can search the SEC’s Investment Adviser Public Disclosure platform. FINRA has a similar tool called BrokerCheck. You just need their name and particulars to ensure you have the right person.

The Bottom Line

Choosing a financial advisor is an important decision that goes beyond comparing fees. While costs can range significantly, an advisor’s value should be measured against their ability to help you achieve your financial goals.

A qualified advisor can offer expertise in many areas, from investment management and tax strategy to retirement planning and estate preparation. The key is finding someone whose qualifications, fees, and approach align with your needs. Before committing, make sure you understand exactly how they’ll be paid for their services.