Investing
Zoe Team
5 min read
Financial planning is like a home blueprint, mapping goals and resources.
Advisors offer tiers: financial planning, investment management, and advanced planning.
Common fee structures include fixed fees, AUM percentages, and hourly rates.
The tiers include financial planning for roadmap creation, investment management for portfolio oversight, and advanced planning for complex wealth management.
Advisors typically charge via fixed fees, a percentage of assets under management (AUM), or an hourly rate for time spent.
Individuals with less than $200k in investments or lower annual income often find one-time flat fee planning to be a cost-effective way to optimize finances.
Let’s say you want to build your own house and you’re trying to find out how much it would cost. If you asked an experienced contractor the answer most likely will be “it depends”. How much house you want, the materials needed, and the number of man hours that will be spent are all important factors in cost. As you can imagine, the cost difference between a 3 bedroom house and an 8 bedroom mansion are drastic.
Now, unless you are an architect, you would at a minimum need someone to draw out a blueprint. With enough time, some people might be savvy enough to try and build the rest from there. Of course, if you don’t have years of experience as a contractor, it makes sense to hire someone. Want to install fancy tile or granite countertops? Again, you could do it on your own to save money, or you could hire a professional.
Nobody likes to get “it depends” as an answer when trying to figure out how much something will cost so here is a simple breakdown of the services a financial advisor provides and a general idea of the costs that come with it.
Generally speaking, the value provided by financial advisors can be broken down into three tiers: financial planning, investment management, and advanced planning.
In the house example, this tier provides a blueprint and leaves you to execute it. Using your goals, current standing, and other relevant information, the advisor crafts a roadmap to meet your goals. While this option is often the most affordable, it also provides the lowest level of professional oversight. However, for those with less than $200k in investments or annual income below $150k, this can be the perfect low-cost way to optimize your situation. A good advisor will charge a one time fee of $500-$2,000 to help you construct a clear plan to save and invest for retirement, plan for a child’s college, pay down your student loans, set up life insurance, buy a home and any other needs you may have. If you want to continue the relationship with the advisor on an ongoing basis as questions arise or your situation changes, a good advisor will cost $100-$500 per month.
The second tier involves both planning and investment management. At this tier, your advisor will follow a similar process to create your plan. Beyond that, though, they will construct an investment portfolio that aligns with your goals and risk tolerance. Not only will they recommend a personalized portfolio based on your goals, risk capacity, and risk tolerance, but they will set it up in a tax-efficient manner, rebalance it, and track results throughout time. If we stick with the house analogy, hiring at this tier is like hiring an architect, a contractor and an interior designer to build the home just way you want it… without ever picking up a hammer! The cost for this service is often paid as a% of the investable assets the advisor will manage. The range can vary from 0.6%-to 1.2%, so for $300k of investments that would be $1.8k-$3.6k per year. To be able to hire a top advisor, this service is best for those with over $250k in investments.
The top tier. With over $500k in investments and a variety of objectives (tax planning, estate planning, philanthropy, business planning, and more), your advisor will handle everything from start to finish. They become your “household CFO” and coordinate with other experts like the estate lawyer, insurance consultant and tax accountant to ensure everyone understands your financial picture holistically and make decisions accordingly. The range can vary from 0.6%-to 1.2%, so for $700k of investments that would be $4.2k-$8.4k per year.
There are a number of ways advisors get paid. Of them, there are three distinct billing methods that we recommend as it helps reduce conflicts of interest and allows your advisor to work with your best interest at heart.
Clients pay a fixed dollar amount for the plan and a monthly or quarterly subscription amount. On average, these flat fees average range between $500 and $2,500 for a one-time setup of the financial plan and a monthly ongoing fee of $100 to $300.
Your advisor will manage your portfolio over time and will be paid as a percentage of the portfolio’s value instead of a fixed fee. The industry average is between 0.6% and 1.2% for the first $1 million but decreases the more assets you own.
This is standard across many professions, in which you’re billed for their time spent. The industry average is $150 per hour, with a range of $100 - $300.
Whether it’s a 2 bedroom house or a $4 million mansion, building a home takes time and planning. The same can be said about planning for your financial future. Maybe you want to optimize your business taxes and set up a trust to minimize estate taxes. Or maybe you simply want to make sure you are saving enough for retirement and are investing properly along the way. Either way, having a good plan in place will not only save you time in the long run but will help you live the life you want by growing your wealth. If you are interested to learn more about how a financial advisor can help you, schedule a free, no-obligation call with your ideal advisor today.
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