How Much Does a Financial Planner (Advisor) Cost?
So you are ready to get your financial life in order. Great! But one major question looms overhead: how much should you pay for comprehensive planning?
It amazes me how difficult the answer to this question is to find. Most financial advisors don’t list their pricing on their website.
I think the main reason most advisors don’t put prices on their websites is because they want to explain their value first. Another is that every client is different and they don’t know exactly what they will charge until they understand your needs.
Fair enough. But I think you should be able to know roughly what you can expect to pay. Let’s try to get you in the ballpark.
So how much does a financial planner/advisor cost?
Well… It depends. How much help you are looking for?
In order to know what is a reasonable price to pay for financial advice, you need to decide how much advice you are looking for and who you want to implement the recommendations. The range of services offered by a financial adviser can range from a one-time meeting to all-inclusive ongoing planning and investment management. The more advice you are looking for the greater the cost. Additionally, the more service you are looking for, the greater the cost.
When is this a good option?
A one-time meeting works well when you want to address one or two financial questions. Perhaps you want to have your portfolio validated by a professional, discuss cash flow issues, evaluate your student loan repayment options, or make sure you are optimizing your employee benefits. A one-time meeting will give you access to a certified financial planner who can provide you with objective advice.
This can also be a great option if you haven’t worked with a financial advisor before and you want to dip your toe in the water rather than diving in headfirst.
The cost tends to range from $400-$1,000. This typically includes a one to three hour meeting with the advisor as well as follow up with recommendations and actions items for you to complete.
When is this a good option?
Hourly projects or flat fee plans can be a good option when you have more than one or two questions and you are comfortable implementing the recommendations on your own. The planner does the analysis, presents recommendations, and you take it from there.
One caveat here that is really important! Taking a plan home and putting in your nightstand drawer or file cabinet does not count as taking action. If you find that you don’t act, you should increase your engagement with a planner so they are implementing the plan on your behalf. Information does not equal transformation. The whole point of financial planning at its core is to align your money with your life. If you get the plan and don’t execute you have done nothing but make yourself feel like you have done something.
Most certified financial planners will charge based on the project. They typically charge around $150-$300 per hour. Rates will vary depending on the advisors experience, expertise, and competition. The cost of the plan will depend on the scope of the engagement. From what I have seen, comprehensive financial plans range from $1,800-$7,500. Keep in mind if your financial situation is complex, you may pay more than the normal range.
Ongoing Comprehensive Financial Planning
When is this the best option?
Ongoing comprehensive financial planning works well for people who don’t have the time, knowledge, or desire to manage their finances. With this service, your financial planner will guide and coach you through your financial life. Have a financial question, give your adviser a call or email, have them recommend the best course of action, and have them help you implement the recommendations. This option works well for people who want to have ongoing access to a financial planner at a reasonable price.
With ongoing planning, the advisor often takes on the role of your financial guide and provides advice, coaching and accountability. This is truly full service and typically covers most facets of your financial life such as: estate planning, insurance analysis, investment analysis, cash flow/budgeting, employee benefits optimization, tax planning, retirement planning, home affordability analysis, student loan repayment, and college planning.
More and more advisors are offering this type of service with an annual retainer. Some will charge $500-$5,000 upfront for the initial planning phase and then charge the annual fee which is payable monthly or quarterly, fees can range from $2,000 to $25,000 depending on the complexity of your financial needs. Once again, if your financial situation is complex, you may pay more than the normal range.
Some advisors who offer comprehensive planning are including investment management in the annual retainer. This is an interesting shift since it frees the advisor to view your balance sheet as a whole, they aren’t getting paid solely on the investments you placed with them. This may help remove a conflict of interest that exists with fee-only advisers who charge their fee on assets under management is you want to pay down your mortgage or buy a rental property with funds that are currently invested.
Many advisors also offer portfolio management services. For most of the advisors I know, there is a distinction between recommending asset allocations and managing portfolios.
Fees for portfolio management range from 2% to .25% depending on the amount of assets you have managed and how they are managed. There can also be additional fees for trading costs and underlying investments.
Some advisors include comprehensive financial planning and asset management under the assets under management (AUM) fee. This is still the most common type of fee I see charged by registered investment advisors (RIAs). Many of which have investable asset minimums of $500,000 or $1,000,000 to get started. A 1% fee on $1,000,000 means you are charged $10,000 per year.
It is important to understand what you paying for so your expectations are aligned with reality. Some RIAs that charge on AUM will hold themselves our as comprehensive planners when they are really investment managers who do light planning such as running a retirement planning projection. Ask them what their planning process entails and you quickly know what they are truly offering.
Where can you find fee-only financial planners?
XY Planning Network is a good place to find certified financial planners who are working with Gen X and Gen Y. As a group of advisors, they are passionate about bringing financial planning, that was historically reserved for millionaires, to Gen X and Gen Y regardless of net-worth or investable assets.
NAPFA’s find an advisor site is another good place to start your search.
Association of Comprehensive Planners is another great place to search. Especially if you would like your planner to have a solid understanding of taxes.
San Diego Financial Advisors Network: If you want to find a local advisor in the San Diego area who is fee-only, this is a great place to start.