What To Know About Financial Advisor Fees

Hiring an experienced financial advisor can be a great way to achieve your financial goals, ensure a secure retirement or grow your Adelaide business. However, compensation and fee rate structures vary a lot from experts to experts, making it difficult to find out how much money you have to pay and whether you are dealing a fair deal. With that in mind, we’ve made a list of what you should understand about advisor fees before you make the final decision.

Fee Structure

Generally, there are five ways a registered financial advisor often charges for their services:

  • Hourly charge: a fee charged every hour, commonly for consulting or special projects
  • Fixed rate: a fixed amount of fee paid for the services, such as creating a financial plan
  • Percentage of managed assets
  • Commissions: extra compensation when a trade or purchase is made
  • Performance-based fee: additional fees when a goal is outperformed

Understand the fee structure of a financial advisor

Fee-only financial advisors are only compensated by their clients with a percentage-based, hourly, or fixed fee and won’t get any additional compensations from products sales, referrals, or investment commissions. Many people often use the terms “fee-based” and “fee-only” interchangeably, but there is a significant difference between them.

Fee-based experts might get a fee for their services, along with compensations. That’s why they are sometimes referred to as commission and fee advisors. Commission-based financial advisors get their compensations based on the types of investment they select. The compensations might come from commissions paid by mutual funds or a sales charge of a product like life insurance or annuity.

Extra Costs

The usual fees wouldn’t be all that you have to pay when hiring a financial advisor. In some cases, you must be responsible for transaction fees or third-party expenses. For example, if your expert uses exchange-traded funds or mutual funds in your accounts, you will need to pay the costs related to those funds. On average, the cost for a mutual fund often ranges from 0.5% to 1.25%. This seems to be a small rate, but it can actually cost you a lot of money. Thus, make sure to ask for any additional costs in addition to fees before hiring a financial advisor.

Financial Planner Fee Structure

How to know your advisor fee is fair?

Before agreeing to hire a financial advisor, ensure that you understand the fee structure and which services include in that fee. Some experts might charge extra for a few programs and services. It should not be hard for them to explain to you how they can add value to your investments. If you only hear elusive or roundabout answers. It is better to choose another one. If they tell you not to be worried about costs, it can be a red flag as nobody wants to work for free, except for fraudsters. Lastly, you should also check if they are a fiduciary to ensure a higher-quality service.

How to minimize advisor fees?

In general, investors with less managed assets often have to pay a larger part of their assets in advisor fees. Determine if a robo-advisor or a traditional expert is better for your situations. Robo-advisors often have lower minimums and fees. If you decide to hire a traditional professional, it is a good idea to choose a fee-only advisor instead of a fee-based expert as the fee structures can be simpler and have fewer possibilities for conflicts of interest.