Is It Worth Paying a Financial Advisor 1%? (2024)

Is It Worth Paying a Financial Advisor 1%? (1)

A financial advisor can give valuable insight into what you should be doing with your money to reach your financial goals. But they don’t offer their advice for free. While the typical annual financial advisor fee is thought to be 1%, according to a 2023 study by Advisory HQ, the average financial advisor fee is 0.59% to 1.18% per year. However, rates typically decrease the more money you invest with them. So you might be wondering whether it’s worth paying a financial advisor, but that answer is very personal to you. If you want help finding a financial advisor, try using SmartAsset’s free matching tool.

What Financial Advisors Do

Generally speaking, financial advisors help you to manage your money. They work with you in creating a financial plan designed for your unique goals. For example, that might include saving $1 million for retirement. Also, it could involve building a college savings fund so your children can graduate without student loan debt.

What a specific advisor does can vary. It depends on whether they specialize in a particular area of money management or hold any financial certifications. For instance, a certified financial planner (CFP) typically offers comprehensive financial advice to their clients.

Since these advisors take a broad look at your financial situation, they could help you with things like creating a debt payoff plan and building emergency savings. In the long term, CFPs can also help you plan whether you have enough life insurance coverage and know what investments belong in your retirement strategy.

A financial advisor who holds a chartered financial analyst (CFA)designation, on the other hand, may focus on investment advice. They could help with picking stocks or mutual funds. Also, they might assist with strategic portfolio moves or stock market analysis. Which financial advisor you work with largely hinges on what you need them to do. Your choice can also determine whether you pay 1% for a financial advisor, more than that or less.

Financial Advisors vs. Financial Planners

Is there really a difference between a financial advisor or a financial planner? As discussed above, a financial advisor can provide a wide range of services to you to grow or protect your wealth. A financial planner is one type of financial advisor that is commonly used for their specialty of creating a comprehensive financial plan to help you achieve your long-term financial goals. Some financial planners also help you manage your investments but it’s not always the case.

Is It Worth Paying a Financial Advisor 1%?

First off, the value of paying 1% is going to vary by person. But, if you’re already working with an advisor, the simplest way to determine whether a 1% fee is reasonable may be to look at what they’ve helped you accomplish. For example, if they’ve consistently helped you to earn a 12% return in your portfolio for five years running, then 1% may be a bargain. The same could be true if they’ve helped you to finally pay off a large amount of debt or reach a major money goal.

This can be a trickier benchmark to use if you’re not working with an advisor yet. In that case, perhaps check the advisor’s track record and reputation and answer “Is it worth paying a financial advisor?” An advisor with rave reviews from current or past clients has a mark in their favor. They’re earning their keep, fee-wise.

If you don’t have an advisor yet and you’re concerned about fees, it’s important to understand your goals. If you have very basic financial management needs, then consider an advisor that charges lower fees or only charges by the hour. However, you may want to choose a robo-advisor to start, then move to a traditional financial advisor as your needs change.

What Percentage Fee Is Too High for a Financial Advisor?

The answer to how much is too much when looking at financial advisor fees is really subjective, but there are some generalities to follow. If you’re getting a return that you feel is worth the fee then you may not be paying too much. Many may ask “Is 1.5% too much?” and the answer is that it depends.

While 1.5% is on the higher end for financial advisor services, if that’s what it takes to get the returns you want then it’s not overpaying, so to speak. Staying around 1% for your fee may be standard but it certainly isn’t the high end. You need to decide what you’re willing to pay for what you’re receiving.

Can I Manage My Money on My Own?

Whether you can manage your own money is going to depend on your financial knowledge and experience with different types of investments. It will also depend on how much money you have to invest. If you have strong financial acumen, and experience investing, then you might be fine investing your own money. If you have less than $50,000 of liquid assets then you may also want to consider going at it on your own as the fees might not be worth it.

With that said, financial advisors can bring a wealth of information and experience to the table that can make a huge difference in your potential return. If you have a substantial amount of money or just don’t have the required experience then you may want to consider hiring a financial advisor to take care of your assets.

How Long Should You Stay With a Financial Advisor?

The length of time that you work with a financial advisor can impact both how much you’ll pay as well as how well you can potentially meet your financial goals. If you have a long-term retirement plan with your advisor but don’t work with them for more than a year or two then it could be difficult to keep any momentum that you’ve built going for much longer than that.

The right decision is going to depend on your unique financial situation and how much you can afford to pay an advisor. If all goes well then the length of time shouldn’t be an issue to you, financially, because the returns can more than pay for the advisor’s contributions.

How Financial Advisors Make Money

Is It Worth Paying a Financial Advisor 1%? (2)

Financial advisors don’t all offer the same type of financial advice. They don’t all use the same fee schedule either. Depending on the advisor, their fee structuremay be put together in one of these six common ways:

  • Hourly rate
  • Flat fee
  • Quarterly or annual retainer fee
  • Percentage of the client’s assets under management (AUM)
  • Commissions only
  • Combination of commissions and fees

Fee-only advisors charge based on the services they offer. So they might charge you by the hour or as a percentage of your assets. They also may use a retainer fee on a flat fee basis for individual services.

A fee-based advisor makes money by charging a combination of fees and earning commissions on investments and financial products. So you might pay your advisor the average hourly fee of $120 to $300 per hour, according to Advisory HQ. But you may also pay them a commission fee each time you purchase an investment they recommend. This commission often deducts directly from the amount you invest.

Keep in mind that these fees apply to human financial advisors. If you’re using a robo-advisor, the fees work differently.

Robo-Advisors vs. Financial Advisors

Robo-advisors offer financial advice that’s based on an algorithm. Some offer human financial advisor support. However, most of the time a computer program essentially manages your investments. Since there’s less hands-on human involvement, robo-advisors tend to charge fewer fees than traditional financial advisors.

For example, instead of paying a hypothetical 1% in fees annually to a human advisor, you might pay 0.25% to 0.50%, which is what the aforementioned 2023 Advisory HQ study found the typical robo-advisory fee range to be. However, it depends on the number of assets you have under management. Some robo-advisors can charge fees that are lower or higher, but 0.25% to 0.50% is a typical fee range.

If you’re asking “Is it worth paying a financial advisor 1%,” robo-advisors may seem like an attractive cost-saving alternative. But ask yourself what level of service and advicedo you expect for your money.

If you’re comfortable with a hands-off investment experience where an algorithm drives decisions, then a robo-advisor could be a less expensive option. You may also lean toward a robo-advisor if you’re new to investing. Some platforms charge no management or advisory fees for investors whose assets fall below a certain threshold.

On the other hand, you may prefer to have someone who can answer your questions. Also, you might make adjustments to your portfolio based on life changes or seek advice on specific investments. A human advisor can deliver that. Only you can decide whether an advisor’s help and advice justifies the fees you’re paying.

Bottom Line

Is It Worth Paying a Financial Advisor 1%? (3)

When weighing an advisor’s fee, consider your desired return on investment. Ask an advisor if they’re fee-based or fee-only. Question any advisor who doesn’t share information about fees. Review the fees you’re paying annually and compare them to the services you’re receiving. That can indicate if your advisor is still a good fit. It can also help to compare the fees of your advisor with others who offer similar services.

Financial Advisor Tips

  • Investing isn’t the only area afinancial advisorcan help you with. There’s a range of financial matters that can benefit from expert advice.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Aside from researching the fees an advisor charges, be sure to research their background as well. That includes their professional credentials, licensing and experience as well as any regulatory actions or complaints that have been filed against them. FINRA’s free broker-check tool can help you with vetting prospective advisors.

Next Steps

Do you want to learn more about financial advisors? Check out these articles:

  • How to Choose a Financial Advisor
  • What Commissions Do Financial Advisors Earn?
  • How Much Does a Financial Advisor Cost?
  • Are Financial Advisor Fees Tax Deductible?
  • How Do Financial Advisors Make Money
  • What Do Financial Advisors Do?

Photo credit: ©iStock.com/AndreyPopov, ©iStock.com/VioletaStoimenova, ©iStock.com/Goodboy Picture Company

Is It Worth Paying a Financial Advisor 1%? (2024)

FAQs

Is 1% too much for a financial advisor? ›

While the fee charged by financial advisors can vary based on the level of service and complexity of financial needs, a fee over 1% may be deemed excessive for several reasons.

What percentage should a financial advisor take? ›

Cost: The median AUM fee among human advisors is about 1% of assets managed per year, often starting higher for small accounts and dropping as your balance goes up. What you get for that fee: Investment management, and in some cases, a comprehensive financial plan and guidance for how to achieve that plan.

Is it worth paying a financial advisor 2%? ›

Without knowing the full scope of services delivered by the advisor, 2% may be too expensive for a portfolio of your size and for a relationship in which tax advice is not provided. This immediate, high-level evaluation is based on benchmarks for typical advisory fees, which we'll dive into shortly.

At what net worth should I get a financial advisor? ›

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

What is the average financial advice fee? ›

Financial adviser ongoing fees

You agree an ongoing fee in advance, which may be a percentage of assets under management. A typical independent financial adviser fee might be between 0.25% and 1%, but some advisers may charge a different percentage depending on your circ*mstances.

What is the 80 20 rule for financial advisors? ›

The 80/20 rule retirement emphasizes the importance of focusing on actions that yield the most significant results. When planning for retirement, concentrate on the 20% of your efforts that will have the greatest impact on your financial future.

Do I really need a financial advisor? ›

Not everyone needs a financial advisor, especially since it's an additional cost. But having the extra help and advice can be paramount in reaching financial goals, especially if you're feeling stuck or unsure of how to get there.

Are fiduciaries worth it? ›

It's recommended that you use a fiduciary financial advisor in most scenarios. Not only are they usually more affordable, they are legally and federally held to high ethical standards. Their role, by nature, is designed to serve your best interest and maximize your financial benefit and not their own.

Do millionaires use financial advisors? ›

Key takeaway: It's no coincidence that most American millionaires use a financial advisor. With an experienced financial advisor on your side, you are more likely to take the strategic actions necessary to achieve your long-term goals.

How many times should you meet with your financial advisor? ›

You should meet with your advisor at least once a year to reassess basics like budget, taxes and investment performance. This is the time to discuss whether you feel you are on the right track, and if there is something you could be doing better to increase your net worth in the coming 12 months.

Should I use a financial advisor or do it myself? ›

Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.

What are the disadvantages of having a financial advisor? ›

Costs: Financial advisors cost money, and not all charge you in the same way. Some charge a percentage of your total portfolio per year. Others charge you an ongoing annual fee, some charge a one-off service fee, while the investment broker pays others via commissions.

Are financial advisors fees tax deductible? ›

No, they aren't. At least not anymore. The Tax Cuts and Jobs Act (TCJA) of 2017 put an end to the deductibility of financial advisor fees, as well as a number of other itemized deductions. As of January 2018, these fees no longer contribute to reducing your tax bill.

What percentage of millionaires use financial advisors? ›

The wealthy also trust and work with financial advisors at a far greater rate. The study found that 70% of millionaires versus 37% of the general population work with a financial advisor.

What percentage of millionaires work with a financial advisor? ›

The wealthy also trust and work with financial advisors at a far greater rate. The study found that 70% of millionaires versus 37% of the general population work with a financial advisor.

How many clients is too many for a financial advisor? ›

Understanding the Advisor-Client Ratio

A ratio that's too high, on the other hand, could lead to dissatisfied clients if you're not able to adequately meet all of their needs. What is a good advisor-client ratio? It depends on who you ask but a typical answer is anywhere from 50 to 150 clients per advisor.

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