2-Minute Money Manager: How Much Does a Fee-Based Financial Adviser Charge?

Man w couple
Photo by goodluz / Shutterstock.com

Welcome to “The 2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about investing; specifically, how much it costs to hire a fee-based financial planner.

If you’ve been around this website for long, you’ll know I’m no fan of traditional commission-based advisers. In my opinion, an adviser who charges by the hour is a much better way to go.

To understand why, and to learn how much services like this cost, watch the following video. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “3 Questions You Must Ask When Seeking Honest Investment Advice” and “Is Your Financial Adviser a Crook? Here’s How to Find Out.” You can also go to the search at the top of this page, put in the words “financial adviser” and find plenty of information on just about everything relating to this topic.

And if you need anything from a better credit card to help with debt, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to the “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this two-minute answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Let’s get right into today’s question. It’s from Larry:

“What should I be expected to pay for a fee-only financial adviser? If that adviser receives commissions, should they be returned to the client?”

Larry, I’ve got three things for you:

Thing No. 1: Understanding adviser compensation

Let’s understand how advisers get paid. There are three common ways.

First, an adviser can be fee-based. In this situation, an adviser charges you a fee for advice, just as a doctor, lawyer or certified public accountant would. This is probably the path to the most objective advice.

Second, an adviser can be commission-based, meaning he or she earns a commission when you invest in a financial product.

I don’t like commission-based sales. I worked as a commissioned-based financial adviser for 10 years, and I can assure you that while individuals within this system may be both intelligent and honest, this isn’t a system that rewards conscientious counseling. Would you expect objective automotive advice from a car salesman?

Finally, advisers can be paid through a “wrap” fee based on the assets you place with them. In other words, you give them $500,000 and they charge you 1 or 2 percent a year of that amount, or $5,000 to $10,000.

I don’t like this system either. It’s too expensive, and in some instances can put your adviser on the opposite side of the table from you. For example, say you want to pay off your mortgage and therefore need to withdraw $100,000 from your $500,000 account. Since your adviser is making money on that $100,000, he or she may advise against it, even if it is in your best interest.

In summary, when it comes to paying for investment advice, no system is perfect. But I prefer what Larry prefers, which is straight-up, fee-based, pay-by-the-hour advice. But how much do these advisers charge?

Thing No. 2: How much does it cost?

The question of how much an adviser should charge is a simple one. Unfortunately, the answer isn’t.

Like a doctor, lawyer, CPA, mechanic or anyone else, these folks can charge anything they want. They could charge a $3,000 minimum to set up a full financial plan. Or, they could charge $25 an hour to answer a question.

Since there are different ways fee-based professionals charge, you really have to talk to several and ask. Then, see what seems fair to you. How will you find several to talk to? One idea is to go to the National Association of Personal Financial Advisors at NAPFA.org. There, you’ll find a ZIP-code search to find fee-based advisers near you.

Before you talk to any kind of professional, make a list of things to ask, then use the list consistently each time you meet with a new professional. See what their credentials are, along with their cost. Ask how long they’ve been in the business, what education they have and what professional associations they belong to. Ask if they’re a fiduciary: That means they’re legally required to put your interest ahead of their own.

Thing No. 3: Nobody’s perfect

There are some cons to fee-based advisers. One of them I just mentioned: They can be expensive. An adviser may charge $100 per hour, but may have a 10-hour minimum. Another potential drawback of hourly professionals: Unless you’re sitting in front of them, they could be charging for more hours than they’re actually putting in.

If you seek fee-based advice and find it’s too expensive — or if all you want is a little guidance and maybe a question or two answered — here’s another idea: Try going to a local CPA. There are CPAs with a PFS designation, which stands for Personal Financial Specialist. They may not charge as much as the other guys, and they’ll likely have all the knowledge you need. (Disclosure: I’m a CPA myself, although I’m not in the business of accounting or personal financial advising.)

Hopefully that answers your question, Larry. Meet me right here next time!

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Things You Should Never Pay For With a Debit Card
9 Things You Should Never Pay For With a Debit Card

Use your debit card for one of these expenses, and you could risk your bank account balance, your credit score or even identity fraud.

Big-Ticket Things You Should Never Buy
Big-Ticket Things You Should Never Buy

In this week’s podcast: Are you wasting big money on these common purchases?

14 Service Providers Most Likely to Lower Your Bill If You Ask
14 Service Providers Most Likely to Lower Your Bill If You Ask

With these companies, it might be easier than you think to negotiate your monthly bill down.

7 Ways to Save Money Without Trying
7 Ways to Save Money Without Trying

Saving money doesn’t always mean drudgery and sacrifice. These tools make it easy — sometimes even fun.

8 Surprising Things No One Tells You About Retirement
8 Surprising Things No One Tells You About Retirement

Knowing what to expect can help you prepare for — and adjust to — life in your golden years.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

What a $15 Minimum Wage Means for Social Security
What a $15 Minimum Wage Means for Social Security

A federal minimum-wage hike could affect the Social Security system dramatically.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

7 Costly Health Problems That Strike After Age 50
7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.