If you’ve never worked with a financial advisor before, you may have a lot of questions about the process — not the least of which is: How much does a financial advisor cost? Ultimately, when it comes to working with a financial advisor, you have several options.
WHEN YOU GET A FINANCIAL PLAN
Financial planning is about helping you make the most of your money so that you can balance the life you want now and in the future. When a financial advisor is doing planning with you, they will ask a lot of questions about where you are now and where you want to be. Then they will work with you to put together a plan to help you get there.
When you do financial planning, there are two main ways an advisor gets paid.
Fee-Based Planning. You pay your advisor out of your pocket for your financial plan. Fee structures can work vary from a single flat fee to an ongoing fee or even an hourly rate.
Product Commissions. Many financial professionals offer free financial planning because they will earn commissions or fees on the financial products you buy from them. This approach allows you to get professional advice about your financial situation with no out-of-pocket cost.
Some criticize this approach, saying that commissions may bias an advisor to sell you one product over another. However, many advisors who offer this kind of service have designations like CFP®, which require them to work in your best interest.
WHEN YOU BUY INSURANCE
Most financial plans include life, disability and other insurance to provide flexibility, stability and protection from unknowns that can harm your financial situation.
The way your advisor is paid when you buy insurance is simple. The insurance company will pay your advisor a commission that’s paid for out of the premiums you pay for your insurance; you don’t pay anything additional out of pocket.
WHEN YOU ARE INVESTING
Commission or Sales Load. You pay a fee when you buy or sell your investments. This is often referred to as a sales load. The fee is usually a flat amount or a percentage of your investment. Loads come in two key forms:
Front Load. With a front load, you give your financial advisor a certain amount, let’s say $10,000. You will only see $9,500 deposited in your account; the remaining $500 will pay for the expense of your advisor.
Back Load. This is basically just the opposite of a front load. You invest all your money now, and then when you take your money out, you may owe a fee depending on the length of time you held the investment.
Advisory. In an advisory arrangement, you will pay a fee each year. This is typically a percentage of the amount of assets you have under management. In most cases, this fee is somewhere around 1.5 percent or less of your total assets each year.
WHAT’S THE VALUE OF WORKING WITH AN ADVISOR?
In many cases, you can buy insurance and investments without an advisor. Different advisors bring different things to the table. But a good financial professional will help you see how all the parts of your financial life fit together through a financial plan. The goal is to help ensure you’re on the right track to reach your financial goals.