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
5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

These 5 Laptops Have the Best Battery Life
These 5 Laptops Have the Best Battery Life

Need a laptop that runs as long as you do? Check out these models.

12 Ways to Never Pay Full Price for Anything
12 Ways to Never Pay Full Price for Anything

Stop paying retail prices. Here are plenty of ways around that.

7 Kitchen Gadgets That Make Healthy Cooking a Breeze
7 Kitchen Gadgets That Make Healthy Cooking a Breeze

These small appliances and cooking aids make healthy eating easy — and they’re all available on Amazon.

How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Is your paycheck gone the moment you get it? Here’s how to break that vicious cycle.

View this page without ads

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

Get Started

Most Popular
17 Everyday Products Now Facing Shortages
17 Everyday Products Now Facing Shortages

Many goods we take for granted have become tough to find in 2021.

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

This iconic dinnerware is prized for everyday use as well as reselling for profit.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

9 of the Best Things to Do When You Retire
9 of the Best Things to Do When You Retire

You’ve waited all your life for this moment. Make the most of your retirement.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

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.

3 Colors That Can Ruin Your Car’s Resale Value
3 Colors That Can Ruin Your Car’s Resale Value

Select the wrong color for your next car, and it could depreciate twice as fast as others.

9 Groups Who Should Brace for Higher Income Taxes
9 Groups Who Should Brace for Higher Income Taxes

Recent proposals would hike taxes for people with a wide range of incomes.

Never Buy These 10 Things on Amazon
Never Buy These 10 Things on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

12 Deep Discounts Available on Amazon This Friday
12 Deep Discounts Available on Amazon This Friday

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

8 of the Worst Things to Buy at Target
8 of the Worst Things to Buy at Target

No store can specialize in everything. For some purchases, it’s smart to shop elsewhere.

8 Things You Should Be Buying at Thrift Stores
8 Things You Should Be Buying at Thrift Stores

For one expert, these secondhand bargains stand out from the rest.

20 Great Part-Time Jobs for Retirees
20 Great Part-Time Jobs for Retirees

Retirees can dial back the intensity of work while continuing to bring in a paycheck.

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.

11 Foods That Can Keep for Years
11 Foods That Can Keep for Years

These are some of the longest-lasting groceries you can buy.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

8 Types of Companies That Check Your Credit Report
8 Types of Companies That Check Your Credit Report

Federal law lets these entities peek at your credit — regardless of whether you’re borrowing money.

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.