5 Strategies to Lower Financial Advisor Fees
Personal Finance News
Mon, Mar 13, 2023 11:36 AM
By Wola Odeniran, CEPF®, SmartAsset
Hiring a financial advisor can be a smart move - but it doesn't always come cheap. Fees may cut into your budget and might even disrupt how you plan to save money down the line. We'll discuss strategies that can help you lower advisor fees and keep you on the right track.
Need help finding a financial advisor or financial planner? SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area.Average Financial Advisor Fees
The average fee for financial advisors is normally around 1% of assets under management (AUM). As you invest more assets, the advisor fee may be lowered.
If you have made the decision to work with a financial advisor, it's important to do your research about costs. Some financial advisors offer services that cost more than others - and within those costs, advisor fees vary.
Once you narrow down the average advisor fee, it will be easier to pick an advisor who fits your budget. If you don't, you can find yourself spending more for an advisor than you should annually.
According to data by Kitces.com, the median financial advisor fee, based on assets under management, ranges.
What if your AUM is $100,000? If you had an AUM of $100,000, the median annual advisor fee in 2020 was 1%.
What if your AUM is $250,000? If you have an AUM of $250,000, the median annual advisor fee is 1%.
What if your AUM is $1 million? If you have assets under management of $1 million, the median fee was 1% in 2020.
What if your AUM is $2 million and up? If you have assets under management topping $2 million, middle-range fees varied from 0.9% to 0.78%.Types of Financial Advisor Fees
There are several types of financial advisor fees clients should understand.
Hourly fees are generally charged for various financial planning services. Some advisors, however, charge hourly fees for investing services.
Asset-based fees are one of the most common fee structures for financial advisors. Clients are annually based on a percentage of assets under management.
Flat fees are also common for advisors to charge for a service. Meanwhile, some advisors also earn commissions for selling insurance or equities.
Fee-only payment structures refer to those in which advisors don't do work off any commission or compensation driven by sales. Their services can be modified at their discretion. Fee-only structures can range from hourly rates to standalone project rates.5 Strategies to Lower Financial Advisor Fees
Here are ways that you can lower your financial advisor fees:
- Do your research. Find an advisor whose fees and services are right for you. Every advisor doesn't offer the same services, and fees vary, so it pays to know what you're getting into.
- Take a look at how your advisor is paid. Look at the advisors' disclosures and form ADV to see the entire pay structure as well as the rules and guidelines they are following with the Securities Exchange Commission (SEC).
- Hire a robo-advisor. Robo-advisors can be a cost-effective resource since the service is digital. Many robo-advisors have low-cost or no-minimum requirements.
- Negotiate with your advisor. Your advisor may be willing to meet you at the negotiating table. It's not a guarantee, but an advisor may be willing to work with you on cost to maintain you as a client.
- Hire a new advisor. Hiring an advisor who just started off in the field may offer lower costs. But it's also important to note that experience matters. Don't just hire a new advisor just because you think it will be less expensive.
Understand how advisor fees work, what typical costs are and how your financial needs fit into those equations. Consider a robo-advisor, new advisor or a renegotiated fee to lower your advisor fees.Tips for Finding a Financial Advisor
- Need help finding a financial advisor or financial planner? Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
- Interview at least three potential candidates before picking one. You may be inclined to settle for the first advisor you talk to. But do your due diligence and ask about their fee structures, rates, professional credentials and investing philosophy. Also, make sure they are under registration with the SEC and abide by fiduciary duty.
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