Just as there are a variety of financial advisors, services they offer, and risk factors to consider, there are a variety of different ways they get paid. Some charge commissions, others an hourly rate, and others a percentage of your earnings. Let’s take a look at some of the most common ways that financial advisors charge for their services.
Commissions
This is one of the most common ways that financial advisors charge. They can receive a commission for products they sell you like a mutual fund or certain investment accounts. The down side to this is that you may not be receiving the best advice. A financial advisor may be recommending a product or service based on how much they make and not on what’s in your best interest.
Hourly Fee
If you plan on asking for advice then implementing it on your own, without the help of an advisor, this may be the best option for you. You can meet with a financial advisor about your investment plan, your retirement fund, and the best ways to invest your money for the return you’re looking for. The advisor makes the same amount of money whether you’re successful or not because they are only charging for their advice. You then take that advice and put it to use. Hourly rates can vary from advisor to advisor; there is no set rate for this type of service.
Combination of Hourly Fee and Commissions
Some advisors will charge both depending on the services they provide. If you want to meet with them and obtain their investment advice, they will charge an hourly fee for that. Then if you want them to make some investments for you, they will charge a commission for that service. If you first plan to invest on your own and you are just looking for advice, then decide you need more help after all, this is the kind of payment plan you can expect to find.
Retainer
If you have a lot of investments, such as a business, rental properties, and stocks, you may find that ongoing advice is the best option for you. Similar to an hourly fee, a retainer is a flat fee paid monthly, quarterly, or annually and does not change based on the advice or investment return you receive. Be sure to ask for a detailed written description of the specific services you will receive for your retainer fee.
Fee for Project
If you only have a need for one specific project, like retirement or estate planning, a project fee may be charged. This is a flat fee charged for the overall project from start to finish no matter how many hours it takes. As with some of the other fee methods, the advisor’s fee is not tied into any bonus or commission they may receive so you will get the best advice for your needs.
The fee you can expect to be charged varies based on the services you need, how often you need them, and the complexity of your financial needs. Be sure to always ask for an upfront, written description of the services you will receive and what you will be paying so there are no surprises.
