A Guide to Ensuring a Fair Price for the Financial Advice You Require
When it comes to finding a financial planner, it’s important to know how much they charge for their services. However, the fee structure can vary greatly among advisers, making it more complicated than simply asking for a one-sentence answer. In order to ensure that you are getting a fair price for the financial advice you need, it’s crucial to understand the different ways advisers get paid and why they have chosen their specific fee structure.
One of the most common ways advisers get paid is through a percentage of assets under management (AUM). This percentage, typically around 1%, may vary depending on the amount of a client’s investable assets. Other popular options include charging an hourly fee or a flat per-project fee, which is often used for crafting a customized financial plan. In recent years, some advisers have adopted subscription pricing that offers tiers of ongoing service with different monthly or annual retainer fees.
For those seeking both financial planning and investment management, a hybrid fee structure may be encountered. This means that clients will pay a percentage of AUM for portfolio management and a flat or hourly rate for financial planning. This hybrid approach has become more popular among advisers as it provides stability during market downturns and allows them to serve a broader range of clients.
There are also advisers who earn commissions when buying and selling certain financial products or insurance policies on behalf of their clients. On the other hand, there are “fee-only” advisers who do not charge commissions and generate all their income from fees. The fee structure an adviser chooses can reveal a lot about their focus and priorities. For example, those who prioritize financial planning over portfolio management tend to charge flat or per-project fees that reflect the complexity of the client’s needs.
It’s important to be skeptical of advisers who claim to be focused on financial planning but charge a fee based on AUM. This may indicate that their main concern is to grow your assets and keep them with their firm. Many experts advocate for flat fees as they promote clarity and transparency in pricing.
The fee structure an adviser uses can also give insight into the size and resources of their firm. Those who work for big financial services companies are more likely to charge for AUM or collect commissions for selling specific products. On the other hand, advisers who charge an hourly rate or use a flat-fee model are usually associated with smaller firms or are sole practitioners. While this may mean you won’t have a team of staff working on your behalf, it can still be beneficial if you prefer active investment management and have access to top asset managers or proprietary research.
To ensure that you are paying a fair price for financial advice, it’s crucial to know what you want from the outset. If you don’t require investment management and simply need financial planning expertise, paying fees solely for that service can make sense. It’s easier to evaluate an adviser’s pricing if you have a clear understanding of your needs. However, it’s important to note that your needs may expand during the initial discussion, so be prepared for a broader conversation about your financial goals.
In conclusion, finding a financial planner who charges a fair price for their services requires understanding the various fee structures and motivations behind them. By asking advisers about their fee structure and why they chose it, you can gain insight into their approach and determine if it aligns with your needs. Whether it’s a percentage of AUM, an hourly fee, or a flat per-project fee, knowing what you want from the outset will help you evaluate an adviser’s pricing and make an informed decision.
