In an ideal relationship, you and your financial advisor should both be happy with what you’re paying. But what🌺 if you feel you’re paying too much? Perhaps you can convince your advisor to agree to lower their cost. There is that balance between charging so much that it drives away business and charging so little that their services don’t appear to be valuable.

Let’s examine what advisors are usually paid, what bang you can expect for your buck, and possible ways to reduce the ⭕price tag.

What Is the Average Cost 🉐of a Financial Advisor?

In 2021, the average fee for a financial advisor’s services was 1.02% of 澳洲幸运5官方开奖结果体彩网:assets under management (AUM) annually for an account of $1 million, according to research done by Advisory HQ News Corp. A 2019 RIA in a Box study of more than 1,350 registered investment advisor firms put the total industry average advisory fee at 1.17%, decreasing depending on the size of your account.

However, 澳洲幸运5官方开奖结果体彩网:high-net-worth individuals may pay less, because the fee structure works on a sliding scale. “A reasonable fee would be 1% at $1 million down to 0.50% at $10 million and 0.10% thereafter,” says , CFP, wealth manager, and founding partner of the O’Donnell Group🌌 in Chico, Calif.

In other words, clients should expect to pay a maximum of $50,000 on a $10 million account. Online advisors have shown that a reasonable fee for 澳洲幸运5官方开奖结果体彩网:money management only is about 0.25% to 0.30% of assets, so if you don’t want advice on anything else, that’s a reasonable fee, says O’Donnell.

What Types of Fees Do Fi꧋nancial Advisors Charge?

Value for Your Money

For the traditional 1% fee, clients can expect 澳洲幸运5官方开奖结果体彩网:asset management services and a 𝓰full financial plan that is updated at least annually, says Jacob Lumby, a graduate associate instructor of personal financial planning at Texas Tech University.

Some firms provide tax-planning services at no additional cost, but many partners with accounting firms charge for all tax-related services. The same is true of💟 legal services, he adds. 

“For high-net-worth clients with adv⛦anced planning needs, these fees can be worthwhile,” says Lumby. “They need high-touch, custom plans with many different professionals involved.” High-net-worth clients are very sophisticated, and they’re also very busy, says O’Donnell. They aren’t going to pay fees for the value they aren’t getting, but peace of mind and less stress can make a financial advisor’s fee worthwhile. 

An advisor should be able to explain how they’re adding value for any amount charged above standard rates. Is the advisor acting as your personal 澳洲幸运5官方开奖结果体彩网:chief financial officer (CFO), for example, and helping with tax planning or estate planning? Are they evaluating where you are vulnerable from an asset protection standpoint? Is the advisor helping you ensure that your 澳洲幸运5官方开奖结果体彩网:charitable gifts have a bigger impact? Input at that level goes beyond money management to the burgeoning realm of 澳洲幸运5官方开奖结果体彩网:wealth management.

Passive vs. Active Management: Value vs. Cost

A 澳洲幸运5官方开奖结果体彩网:passive investment strategy involves 澳洲幸运5官方开奖结果体彩网:buying and holding investments long-term. It looks to maximize returns by minimizing buying and selling. It relies on the 🎶theory that the market ultimately posts positive returns over time, and it eschews attempting to make money off short-term fluctuations or market timing. It is intended to build wealth incrementally but inevitably.

For example, “If a client wants to reduce fees to razor-thin levels, some advisors will manage ETF-based portfolios that track different sectors of the market,” says , a certified public accountant and the Director of Finance and Revenue Cycle Management for Master Center for Addiction in Richmond, VA. 澳洲幸运5官方开奖结果体彩网:Exchange-traded funds (ETFs) usually contain a basket of equities or bonds that mirror an underlying index, such as the 澳洲幸运5官方开奖结果体彩网:S&P 500 or an index of 澳洲幸运5官方开奖结果体彩网:U.S. Treasury bonds🧔. Passive management requires less work from the investment advisor and usually results in lower fees for the 🌳investor.

A portfolio that’s 澳洲幸运5官方开奖结果体彩网:actively managed usually involves a team of investment professionals, headed up by a portfolio manager, who is engaged in monitoring the portfolio’s performance and holdings. The process would involve buy, sell, and hold recommendations and trades designed to outperform the market, which is typically measured by a 澳洲幸运5官方开奖结果体彩网:benchmark index, such as the S&P 500.

“Expect to pay more for actively managed portfolios,” says Sims. “If the investment advisor puts more effort int♌o beating the market, then clients should expect to pay a higher fee for assets under management.”

However, just because you can pay extra for active management doesn’t mean you should. Actively managed funds tend to underperform index funds, according to S&P Dow Jones Indices, which tracks the performance of actively managed funds versus market benchmarks. Per the SPIVA U.S. Scorecard for mid-2023: "a majority of large-cap managers outperformed in only (three) of the last 23 years (missing by a whisker in 2022)."

If you’re going to hire a financial advisor with an actively managed strategy, be sure to know the types of securities in which the advisor will be investing and whether those holdings align with your 澳洲幸运5官方开奖结果体彩网:long-term financial goals and 澳洲幸运5官方开奖结果体彩网:risk tolerance level.

Vanguard and Betterment

If you want to work with a professional advisor but don’t need highly personalized service, Lumby suggests looking at Vanguard’s Personal Advisor, which offers financial planning and wealth management for an annual gross advisory fee of 0.35% for all-index options or 0.4% for active/index options. And if you need only portfolio management, not financial planning or advising, consider wealth management services such as 澳洲幸运5官方开奖结果体彩网:Betterment, which has a fee of $4 per month or 0.25% of AUM annually.

How To Reduce Costs, But Get Quality Advice

Although the goal is to reduce fees and expenses by as much as possible, it’s important to consider the level of service and pe♛rformance the financial advisor offers. Below are some effective tactics for cutting financial advisor expenses.

Use a Fee-Based Financial Advisor

You’ve probably heard this before, but the best way to make sure you’re getting unbiased financial advice that’s in your best interest is to hire a 澳洲幸运5官方开奖结果体彩网:fee-based advisor, not a commission-based one. Fee-based advisors have a greater incentive 🏅to grow their clients’ assets, according to Sims. “In the long run, this is a win-win solution for the client and the advisor,” he says.

Avoid Up-Front Loads

Try to avoid “big 澳洲幸运5官方开奖结果体彩网:upfront loads and other silly fees that often accompany products being sold by select brokers,෴” says Lumby. “Upfront loads are sales and commission charges that investment managers or funds charge investors at the onset of investing money with them.

In today’s low-cost investment world, there is no place for loaded 澳洲幸运5官方开奖结果体彩网:mutual funds or related products. Fees are one of the leading indicators of investment results. Low fees result in more money in your investment account and a bigger legacy to pass on.”

Negotiate a Lower Fee

Another way to pay less is to negotiate a financial advisor’s fee. Be prepared to explain why you feel it is too high and why it makes 🅰sense for the advisor to take you on as a client f𝄹or less than what their firm normally charges.

If you like the advisor but want fewer services than they typically provide for a client, 🤡they may be able to justify charging yoꦬu less. The same is true if you’re bringing them more assets than they typically manage.

Hire a Newbie

You could also take a chance on a newcomer to financial advising. "Often, they know they can’t demand top dollar and are hungry, need the business, and are willing to dicker," says , CFP, founder of Personal Money Planning in Wichita Falls, Texas, where he serves as its investment advisor and a financial planner.

Though you might get what you pay for, you’ll probably get more attention, says Silverman. What’s more, he adds, “Folks that are new usually know they are a bit ignorant, so they’ll study hard before handing you a recommendation. Just because 🍎someone has been doing this f🎶or three years doesn’t mean they do a poorer job than someone who’s been at it for three decades.”

The Bottom Line

When looking for a financial advisor or deciding whether to stay with your existing one, remember that you want the advisor who provides the best value, which will not necessarily be the one who comes at the lowest price. Think about which services you really need and how much they’re worth to you, then 澳洲幸运5官方开奖结果体彩网:find a financial advisor who fits your criteria.