Financial Advisor Fees, Commissions, and Costs Explained

Peter Richardson is a vice president of Planning Philosophy and Thought Leadership at Northwestern Mutual.

If you’re new to working with a financial advisor, you may have a lot of questions about the process—especially: How much does a financial advisor cost?

There’s no industry-wide standard fee for financial experts. Financial advisors make money in different ways, and their compensation often depends on what you’re asking them to do. Some advisors charge fees for planning or investment management. Others may receive commissions when you buy certain financial products. Sometimes, you may not pay anything directly out of pocket.

Here are some situations in which you may need to pay an advisor and how those fees might look.

When you get a financial plan

Financial planning is about helping you make the most of your money to achieve your goals. When a holistic financial advisor helps you plan for your future, 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.

Here at Northwestern Mutual, we think it’s important to consider how your money is protected and how it can grow. This combination of insurance and investments in one financial plan can be powerful—and can lead to better outcomes.¹

In general, there are two main ways an advisor gets paid.

Fee-only and fee-based financial planning

Financial advisors can charge a fee for financial planning. The cost often depends on how complex your financial picture is—including the number of accounts, value of your assets, and hours spent planning and coordinating with other professionals, like tax specialists or estate attorneys.

For example, someone with a straightforward situation may pay less than someone with more assets, business interests, or estate planning considerations. Because pricing can vary by advisor and by situation, it’s important to ask how fees are calculated before you begin working together. Although you may feel awkward raising the topic, a reputable advisor should be comfortable walking you through it. After all, they’ve probably answered the question for other clients.

As you compare advisors, you will run into two labels that sound almost identical but describe different arrangements. A fee-only advisor gets paid solely by you. That payment might take the form of a flat project fee, an hourly rate, an ongoing planning retainer, or a percentage of the assets the advisor manages for you. What makes the arrangement fee-only is what the advisor does not receive: The advisor, the advisor’s firm, and any related party do not accept commissions or other sales-related compensation from the companies whose products you buy. The Certified Financial Planner® (CFP®) Board holds CFP professionals to that definition and disciplines those who use the term loosely.

A fee-based advisor charges you a fee and may also earn a commission when you purchase a product, such as life insurance, an annuity, or a mutual fund. To put it simply, fee-based means “commission and fee.” The CFP Board permits the term but requires a CFP professional who uses it to make clear that the practice is not fee-only.

The distinction describes where the money comes from, not whether one advisor is more trustworthy than another. If an advisor tells you the practice is fee-based, then you may want to ask which part of their compensation comes from you, and which part comes from a product company.

Product commissions

Many financial professionals offer planning with no separate planning fee because they may earn money when you buy financial products. This approach can allow you to get professional advice about your financial situation without a direct out-of-pocket planning cost.

Earning a commission for selling a financial product is a legitimate, regulated, and long-established way to be paid, and it says nothing negative about an advisor’s competence or character. Commissions also widen access to advice. Many people who need life insurance or disability insurance most urgently—young families building protection before they have assets to manage—would never write a separate check for a financial plan, and a commission-based model lets them work with a professional anyway. What’s more important is that the recommendation fits your goals, the advisor explains the cost (and the potential conflict of interest) in language you understand, and the advisor acts in your interest when making the recommendation.

Every compensation model carries incentives. An advisor paid a percentage of assets under management has a reason to favor keeping your money invested rather than using it to pay down debt or buy protection. An advisor paid a commission has a reason to favor products that pay that advisor. An advisor paid an hourly rate has a reason to work more hours. That’s why it’s important to have a direct conversation with your advisor about how they are compensated.

Because commissions can create potential conflicts of interest, this is a good area to ask questions about. You’ll want to understand:

• Whether your advisor is acting under a fiduciary standard, which requires professionals to act in your best interest when providing financial advice. A CFP professional owes that duty at all times when giving financial advice, no matter how they are compensated.
• How they are compensated.
• Whether they hold designations such as CFP.

The CFP is one of the top certifications in the financial planning industry and is awarded to financial professionals who have demonstrated comprehensive financial planning knowledge.

When you buy insurance

Many financial plans may include life insurance, disability insurance, and other insurance to provide flexibility, stability, and protection from unknowns that can harm your financial situation. This is because considering insurance along with investments can lead to better financial outcomes—more income in retirement and larger legacies to leave your loved ones.¹

By looking at all your assets together, a financial advisor is in a really good position to help you understand what you need and what will best cover you.

The way your advisor is paid when you buy insurance is simple. The insurance company will pay your advisor a commission that’s covered by the premiums you pay for your insurance; you don’t pay anything additional out of pocket. This is true for all different types of insurance policies.

When you are investing

You can either choose to receive investment advice from your advisor or have your advisor manage your portfolio. A financial advisor can also help you think through your broader investment approach, including concepts like diversification. If your advisor is managing your portfolio, there are different ways they may charge for their services.

Commission or sales load

You may pay a fee when you buy or sell investments—including stocks or mutual funds. 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 see only $9,500 deposited in your account; the remaining $500 (or 5 percent) will pay for the expense of your advisor and other product costs
• Level load: A level load is a fee (e.g., 1 percent per year) deducted annually from your investment fund for as long as you own the fund to cover fees for the fund manager, as well as distribution and marketing costs.

Advisory fees

In an investment advisory arrangement, you typically pay a management fee each year. This is often calculated as a percentage of the assets under management. In many cases, the advisory fee is around 1.5 percent or less of your total assets each year. So, if you had $100,000 in assets with an advisor that charges 1 percent per year, your annual fee would be $1,000.

What’s a typical fee for a financial advisor?

There isn’t one “normal” fee for a financial advisor because costs can vary widely depending on your situation, what services you need, and how the advisor is compensated. As explained above, some advisors charge directly for planning. Others are paid through commissions, advisory fees, or a combination.

What’s the value of working with an advisor?

It is certainly possible to buy insurance and investments without an advisor, but doing so requires some financial knowledge and time. If you partner with an advisor, you’re paying for an expert who will get to know you and let you lean on their industry expertise and knowledge to build a plan to help you reach your financial goals—whether that means protecting your family, building wealth, saving for retirement, or starting a college fund. Ideally, this includes both growth strategies (like investing) and layers of protection (like life insurance) to help you achieve all you want in life.

Ultimately, the cost of a financial advisor is only one part of the decision. Look for someone who knows your area and works with people like you. At Northwestern Mutual, we think the best financial advice begins with a solid understanding of you and your goals and combines insurance with investments. We can help you find a good match.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization's initial and ongoing certification requirements to use the certification marks.

Financial advisors and wealth management advisors do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.

Frequently Asked Questions

What is a normal fee to pay a financial advisor?

There isn’t one normal fee to pay a financial advisor because financial advisor fees depend on the services you need and how the advisor is compensated. Some advisors charge a flat fee, hourly fee, or ongoing planning fee. Others charge an advisory fee based on assets under management, or they may receive commissions when you buy certain financial products.

What is the difference between a fee-only and a fee-based advisor?

A fee-only advisor is paid only by clients, through fees (such as a flat fee, an hourly rate, a planning retainer, or a percentage of assets under management) and accepts no commissions or other sales-related compensation. A fee-based advisor charges client fees and may also earn commissions on products such as insurance or annuities; the term means “commission and fee.” Neither model is necessarily better. Commissions are a legitimate way to pay for professional work and often make advice affordable for people who are building protection before they have assets to manage. Ask any advisor to explain how they are paid, what that payment covers, and how they handle the conflicts that come with it.

Is it worth paying a financial advisor?

Paying a financial advisor may be worth it if you want help making big financial decisions, building a plan, or managing competing goals. A good advisor can help you understand your options, avoid blind spots, and create a plan that balances what you need today with what you want in the future.

How much money should you have before using a financial advisor?

You don’t necessarily need a certain amount of money before using a financial advisor. An advisor can help with questions at many stages of life, including budgeting, saving, investing, buying insurance, preparing for retirement, or planning for major goals. The right time to talk with an advisor is often when your financial life starts to feel more complex or when you want help making a plan.

What return should I expect from a financial advisor?

A financial advisor can help you build an investment strategy, but they generally should not promise a specific return. Markets can change, and returns depend on factors such as your goals, risk tolerance, time horizon, and investment mix. The value of an advisor often comes from helping you make informed decisions, stay disciplined, and connect your investments to your broader financial plan.

Do I actually need a financial advisor?

Not everyone needs a financial advisor, but working with one can be helpful if you want personalized guidance or have several financial goals to balance. You may benefit from an advisor if you’re planning for retirement, protecting your family, managing investments, buying insurance, or trying to understand how different financial decisions fit together.

How do you know if a financial advisor is good?

A good financial advisor should take time to understand your goals, explain recommendations clearly, and be transparent about how they are compensated. It’s also reasonable to ask about their experience, credentials, planning process, and whether they are required to act in your best interest when giving advice.

What questions should I ask a financial advisor?

Before working with a financial advisor, ask how they get paid, what services are included, and whether there are any fees or commissions you should know about. You can also ask about their credentials, how they build a financial plan, how often you’ll meet, and how they’ll help you track progress toward your goals.