Working with a financial advisor can have many long-term benefits. Having a third party assist with complex financial decisions is often worth far more than the fees charged for the advice. But of course, not everyone needs an advisor’s services.
Knowing when to hire a financial advisor can be tricky since there are no firm guidelines on when to seek advice. Many advisors won’t consider clients unless they have a certain amount of accumulated capital, but there’s no net worth minimum for financial guidance. In fact, clients with minimal savings or debt concerns are often the most in need of an advisor’s recommendations.
Read on to learn more about the cost of a financial advisor. If you have any questions after, contact our team at Good Life Mt. Pleasant for a complimentary consultation.
Advisor Pay Structures
If you’re worried about fitting an advisor’s services into your budget, do what you would do with any type of financial decision – shop around! And that doesn’t mean going with the cheapest available option either. Taking the time to find the right advisor can save money upfront through fees and long-term with proper investment recommendations. Understanding how advisors get paid can aid in your decision-making process.
Some financial advisors earn their living off commissions, which is a fee paid to them by a brokerage or asset manager for selling certain investment products to clients. Clients of commission-based sometimes see the cheapest upfront costs. Commission-earning advisors need to only follow a standard of ‘suitability’, which means the investment must suit the client’s profile.
Fee-Based vs Fee-Only
Fee-based advisors earn their income from a combination of fees and commissions. Many of these advisors have a fee structure for hourly rates, a personalized financial plan, or a percentage of the client’s assets under management (AUM). Fee-only advisors act as fiduciaries, which means they don’t earn payment from any fund issuer or insurance firm for getting clients into their products.
Fee-only advisors charge in three ways:
- Hourly – The client is charged for the amount of type spent with the advisor, or on the amount of time the advisor spends on the client’s financial plan or portfolio construction. Hourly consultations with advisors typically cost a few hundred dollars.
- Flat Fee Per Client – Depending on the magnitude of work required, an advisor may charge a client a flat fee based on how much needs to go into their financial plan or wealth management strategy. Coming up with a detailed financial plan that a client can use on their own usually costs more than the hourly fees, often in the neighborhood of several thousand dollars per plan depending on the complexity.
- Assets Under Management (AUM) – If you want your fee-only advisor to manage assets on your behalf, you may be charged a percentage of those assets as a fee. For example, a client that gives $1 million to an advisor for investing may be charged 2% on that capital for the advisor’s investing guidance. AUM fees often guarantee the best-in-class service since the advisor makes more money if the client’s assets perform better.
When To Hire An Advisor
Sometimes it is crucial to get a financial advisor on your side for important life events. Money is often an uncomfortable and confusing topic, with emotions getting in the way of our rational thought process. If you find yourself in any of the following situations, consider adding the services of an advisor:
- Marriage and Children: Getting married and having kids is a commitment both a personal and financial commitment. And let’s face it, kids are expensive. Learning how to combine finances and handle the monetary burdens of child raising are key areas an advisor can help with.
- Death of a Loved One: If a parent or relative dies and leaves assets in your name, dealing with complex financial decisions may be the last thing on your mind. An advisor can help allocate a lump sum of cash or assets while the client processes and grieves their loved one.
- Debt or Money Woes: If you’re struggling to make ends meet, a financial advisor may be far down the list on your budget. But money problems often spiral and the guidance of an advisor may result in short-term pain for long-term gain. Saving a few hundred dollars for an advisor consultation on budgeting, taxes, and money management could stop the debt spiral and allow a client to build a prosperous future sooner than expected.
It’s Never a Bad Time to Explore Your Options
Sometimes it’s best to listen to your gut. If you feel like you’ve accumulated enough assets that an advisor would save both time and money, you may be right. This can vary from person to person. But if managing money is taking up too much free time (or causing unnecessary stress), seek out an advisor. No matter where you are in your financial journey, it helps to have a plan in working toward your goals.
If you’re ready to begin your journey, contact our team at Good Life Financial Advisors of Mt. Pleasant to schedule a complimentary no-obligation consultation.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.