A financial advisor provides financial advice or guidance to customers for compensation. This includes a number of services such as investment management, income tax preparation and estate planning.
How Financial Advisors Charge for Services
Financial advisors who operate as fee-only planners charge a percentage – usually one to two percent – of a client's net assets. For a typical one percent rate on a million dollar portfolio, financial advisors take home $10,000 per year in fees. However, the more assets a client has, the lower the percentage he pays for advisory services.
This is usually the most expensive route. However, it gives advisors an incentive to not take huge risks or ones they would not take with their own money. Since advisors receive a percentage, they have an interest in managing their clients' portfolios very well.
Hourly Rates or Commission-Based Fees
Advisors can also charge clients per hour or based on commission rather than a certain percentage of assets. It all depends on the type of advisory services a client needs. The usual rates are $250 to $500 per hour, with the total ranging from $3,000 to $5,000 on various projects such as generating an estate plan for a client.
Self-directed investors tend to pay advisors flat fees or go with hourly rate payment plans. They often only seek suggestions from advisors or the option to use complicated asset allocation models.
Another set of investors may want advisors to take control of their portfolios and make all the decisions for them. These investors tend to have less of an understanding of financial matters. Flat fees range from $1,000 to $2,000 for an advisor to look over a client's portfolio and make simple suggestions.