The average fee for a financial advisor is generally around 1% of the assets they manage. However, the more money you have invested, the lower the fee will be. For example, if you have a Gold backed IRA account, the AUM fee may be as low as 0.50%. The payment of a percentage commission to an advisor is called the “assets under management” model or “AUM fee”.
The current industry standard is to collect between 0.50% and 2% of the assets that are managed annually. Most advisors have around 1% commission and usually charge a discount above certain asset levels or thresholds. The bottom line is that comparing the cost of financial counseling requires considering more than just “a single counseling fee.” Regardless of the type of financial planning service you choose, make sure you understand exactly how much you'll pay for the services and what they entail. Not all financial advisors are paid on a percentage basis, making comparisons between advisors challenging for the consumer. While many people use a financial planner simply to invest for retirement, this is only a small part of what many advisors offer.
Let's review each compensation model in greater detail to learn about the costs you can expect to pay a financial advisor for your services. In fact, as the Fidelity comparative study shows, consumers (and advisors) seem to have great difficulty assigning a clear value to financial planning services. Ideal for: If you want an advisor who provides financial planning and investment management services for approximately 1% of the assets you manage for you, it may be a good option to find a good advisor who only charges fees based on the AUM. One indicator that your advisor is commission-based is if you offer a financial product, such as an investment fund, that has an “upfront fee structure”.
Ideal for: If you have a good income but don't have a large balance of investable assets and still want access to a financial advisor, the percentage of income model may be a good solution. This is not to say that financial planning services are not valuable, but rather that there is no clear consensus on how to value them effectively, which is why companies offer a very different range of supportive financial planning services at substantially similar prices. When it comes to investment management fees, the fact that the typical financial advisor already allocates only half of his advisory fees to investment management (albeit with a large variation) suggests that there may not be much commission pressure for financial advisors. A combination of fees, services and customer service will help you determine the best option for your financial advice.
From this perspective, the reality is that the share of a financial advisor's fees allocated to investment management doesn't actually differ much from that of today's roboadvisors, suggesting that there may not be much reduction in investment management fees on the horizon. Now, thanks to the advancement of financial technology, a low fixed fee is rapidly replacing the old 30-year Asset Percentage Advisory Commission (AUM) and can transform your “income result” when you retire. And just because a financial advisor charges a fixed fee doesn't mean that all customers pay the same rate.