How Are Financial Advisors Paid?
Understanding what you’re going to pay when you decide to work with a financial advisor is crucial! Unfortunately, it gets complicated with all the different fee structures out there, which leads to you often feeling overwhelmed. To help you feel less overwhelmed and more confident, here are clear explanations of the most common fees that financial advisors pay.
Typical Financial Advisor Fees and Costs
Fee-only advisors charge an annual, hourly, or flat fee for their services. This could be a fixed dollar amount or a percentage fee.
Percentage of Assets Under Management (AUM)
In this fee structure, the amount you pay is based on two things: 1, the percentage fee that you and your advisor agree on and 2, the amount of investable assets you may have. It’s a common misconception that the percentage fee is always 1%! However, nearly every advisor tiers their fee structure based on the amount of investable assets a client has - the more assets a client has, the lower the fee they pay. Additionally, AUM stands for assets under management. Ex: a client with $50,000 in investable assets works with an advisor who charges 1% of AUM. To calculate the fee, we multiple 1% by $50,000. The fee the client pays each year would be $500.
Advisors who are fee-based may charge clients a fee, such as percentage of AUM, and commissions.
Clients who want to pay for specific services or plans will be able to pay a pre-determined amount. The amount is often negotiable.
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