Average Financial Advisor Fees & Costs | 2017-2018 Report| Understanding Advisory & Investment Management Fees
Understanding how financial advisors are paid is critical when looking to engage the services of a financial advisory or investment management firm.
For the past two years, AdvisoryHQ has been publishing its top rankings of the “Best Financial Advisors and Wealth Management Firms.”
As part of our research to identify top advisors and investment managers, we observed a tremendous level of consumer interest in finding average financial advisor fees and investment fees.
Key questions asked by consumers included:
- What are the average financial advisor fees and investment management fees across the U.S.?
- Where can one find details on financial planner fee structures?
- Where can consumers find a range of financial advisor fees (hourly, annual, fixed, and %)?
This detailed 2017-2018 report of financial advisor fees has been published to help answer all of the above questions for investors, consumers, and professional financial advisors.
Image Source: BigStock
Understanding Financial Advisor Fees
Before we continue, let’s quickly address the standard “fee structure” that is used across the financial advisory and investment industry.
Financial advisors and wealth management firms generally present their fees to clients in the form of a fee structure. A fee structure is a list or a table that shows a breakdown of a financial advisor or investment management firm’s fees.
When meeting with a new financial advisor, you should ask them to send/show you their investment management fee structure. When you receive it, make sure you compare their fees with the average advisory fees presented in this 2017-2018 report.
You can also review the financial advisory firm’s website. Most firms present their advisory fee structure under their “fees” or “info” or “FAQ” page.
Sample Fee Structure
The figures above are examples, and used to illustrate what a fee structure looks like. Please see the sections below for actual figures of average financial planning fees, financial advisor fees, and investment management fees.
Average Financial Advisor Fees & Costs| 2017-2018 Report
Click any of the links below to jump directly to the specific type of fees that you would like to compare.
Financial Advisor Fee Breakdown:
- Asset Under Management (% Fees) (Most Common Type of Fees)
- Asset Under Management (Fixed Fees)
- Hourly Fees
- Annual Fees
- Hybrid Fees
- Average Advisor Income Per Client
How did the AdvisoryHQ research team determine the average independent financial advisor and investment fees presented in this review article? Click here to jump below and learn more.
Financial Advisor Fees: % of AUM (Asset Under Management)
This is the most common fee structure in the financial advisory and wealth management industry. It involves the process whereby an advisor or investment management firm charges clients a percentage of the assets being managed.
Charging clients a percentage of the asset being managed, also known as assets under management (AUM), was the original compensation plan for financial advisors, RIAs, and wealth managers, and it’s still the most commonly used investment fee structure today.
This structure is very simple: a client gives a particular amount/asset (for example, $500,000) to an investment manager to invest on his or her behalf.
In return, the investment manager charges an annual percentage (for example, 1%) of the assets entrusted to the wealth management firm.
The table below presents average 2017-2018 financial advisor fees (comparison) based on % of AUM across the United States.
These fees were documented based on a random sampling of a wide range of wealth advisors, RIAs, and asset management firms. Click here for additional information on our equal probability of selection sampling approach.
Average Financial Advisor Fees | 2017-2018 Report
Average Advisor Fees (%)
Annual Advisor Averages
% of Assets Under Management
The financial advisor fee averages presented above correlate with Bloomberg’s Investor Guide to Fees and Expenses report, which shows that clients with “more than $100,000 in investment accounts pay less than 1.12%” annually (on average) in management fees.
Less-affluent investors, on the other hand (those with $100,000 or less in account size), typically pay more than 1.12% in fees per year. Clients with about $1,000,000 in invested assets pay around 1%.
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The average financial advisor fees presented in this comparison report reflect administrative fees (record keeping, accounting services, trading, etc.) and overall management costs (ongoing due diligence, monitoring, tax management, portfolio rebalancing, ongoing investment advice, and financial planning).
However, the fees above do not cover expenses for any mutual, index, or exchange-traded funds you may own within your account.
According to Bloomberg News, below are additional fees that you might end up paying for mutual/index funds and exchange traded funds (ETFs) within your account.
- Actively managed mutual funds: 0.65% of the value of the fund per year for bond funds and 0.89 percent for equity funds.
- Index mutual funds: 0.12% of assets per year for equity funds and 0.11% for bond funds. __
- Exchange-traded funds: 0.5% of assets (average expense ratio for U.S. non-leveraged ETFs)
Asset Under Management (Fixed Fees) | Fixed Financial Advisor Fees
In addition to firms that charge by a percentage of asset under management, there are firms that charge only a flat fee per managed assets.
This fee type is basically when an investment manager charges a fixed fee based on how much assets are being managed on your behalf. The table below presents this year’s overview of fixed financial advisor fees (per value of asset under management).
Often, investment management firms would determine their fixed financial advisor fees based on a pre-determined percentage.
Average Fixed Fees (Annual Fees Per AUM)
Average Financial Advisor Hourly Fees/Rates
Rather than utilizing a tiered investment advisor fee structure or a percentage of AUM wealth management fees comparison structure, some financial planners choose to go with a much simpler fee structure: they charge by the hour.
Average hourly financial planner fees range $120-$300 an hour based on the location of the advisor.
For example, Financial Connections is a flat-fee-based financial advisor in California, and the firm has an hourly planner fee of $200 for financial planning advice.
Hourly planning is ideal if you need:
- A check-up to determine progress in meeting financial goals
- A financial plan
- Putting together an estate plan
- A second opinion on financial issues
- A financial planning road map
- Retirement accumulation strategies
- Structuring tax strategies
- Retirement withdrawal strategies
- Review of investments in a 401(k)
- Discussing major life changes
- Investment review for do-it-yourselfers
In addition to location, a firm’s exclusiveness, types of services, and demand for its services may be reflected in the firm’s hourly planner rate. This is the reason why some investment management firms can charge $300 and why other wealth managers and advisors charge a rate that is at the lower end of the spectrum.
At the end of the day, which firm you use would depend on your personal preference, your location, and the services that you seek.
Note: A wealth advisor’s fees do not necessarily determine the quality of service provided. Just_because a wealth management firm has a $300 per hour financial planning fee does not make it better than a wealth management firm charging $100 or $120 per hour. And vice versa.
Average Annual Retainer Financial Planning Rates
Average financial planning retainer rates range $6,000-$11,000 a year depending on your location.
Hybrid Fee Structure
Some financial advisors utilize a hybrid financial advisor fee structure, which involves a mix-and-match variation of the percentage of AUM, fixed, tiered, and hourly pricing reflected in this 2017-2018 investment management fees review.
For example, TrueWealth is a wealth management firm in Atlanta, Georgia, that offers independent, fee-only advice to its clients. The firm’s “financial planning fees” range between $1,500 and $5,000, depending on the complexity of the client’s situation.
The firm charges a different set of fees for its investment management services. These asset management fees are based on a percentage of assets under management and may vary between 0.25% per quarter (for the first $2 million) to 0.125% per quarter (for portfolios in excess of $5 million).
Another example is White Horse Advisors, a firm that charges clients a fee based upon the market value of each portfolio.
White Horse Advisors Fee Structure
Image Source: White Horse Advisors
Average Financial Advisor Income Per Client (AUM)
Key Considerations: Factors That Would Cause a Firm’s Fees to Divert from Average Fees
As mentioned above, a lot of variables go into wealth management, financial advisor, and financial planner fee structures. Your advisor or asset manager might charge a lot more or a lot less than the average financial advisor fee rates presented in this article.
Below are some considerations that determine the specific fees charged by a financial advisor relative to the average financial advisor fees presented in this article:
- Some financial advisors charge a specific percentage for assets under management. However, these advisors might also provide clients with ongoing financial advice and planning services. These additional services could affect the quoted fees.
- In addition, a financial advisor’s fees could be much higher than the averages listed here because such an advisor/asset manager might perform highly complex investing strategies with an aim of outperforming the S&P 500. Such strategies normally involve more resources, research, and costs, which are reflected in the higher asset management fees being charged by the advisor.
- An advisor who merely invests his or her clients’ fund in safe assets (mutual funds, bonds, etc.) might charge a much lower fee than the financial advisor fee averages referenced in this article.
In addition, the size of your portfolio is a key element in determining financial advisor fees and comparison. The higher your account size, the lower investment management fees you should expect to pay.
Wealth Management Account Minimums
As part of their offerings, wealth management firms normally require a minimum account size. Minimum new account size varies widely across the wealth management industry.
Some wealth managers require a $3,000,000 minimum. Others are much lower and only require $150,000.
Online asset managers (i.e., robo-advisors), on average, require an extremely low minimum account size. However, they do not provide the human touch, comprehensive services, and customized relationship approach provided by your regular wealth management firm.
So, depending on the asset manager you choose, you can expect a minimum account size requirement starting from $0 (robo-advisors) and_reaching as high as $10,000,000 (highly exclusive wealth managers).
Types of Financial Advisory Firms
Across the industry, there are three main types of wealth advisory firms:
- Fee-only: These types of advisory firms do not accept any fees or compensation based on product sales. They are compensated solely by their clients. Fee-only advisors have fewer inherent conflicts of interest, and their fee structures might be hourly, include an annual retainer, or be based on a percentage of your investment assets.
- Commission-based: This type of advisory firm (e.g., commission-based investment managers) earns commission on the financial products that they sell to their_clients.
- Fee-based: Such advisors use a fee-only structure for some services, while they earn commissions on other services that they provide. This is known as a fee-based structure.
AdvisoryHQ’s Research to Determine Typical Financial Advisor Fees and Averages
How did the AdvisoryHQ research team determine the typical investment management fees and average financial advisor rates presented in this review article?
To determine the average financial services fees across different U.S. states, our research team spent time reviewing a wide range of financial advisor fees.
The team looked at typical investment management fees across states in the Eastern, Western, Southern, Midwestern, and Northern regions of the U.S. In addition to location, the team also compared financial advisor fees based on firm sizes, as well as financial planner fees based on financial and retirement planning services.
The team’s objective was to identify the average, median, and typical financial advisor fees charged across the investment and financial planning industry. Please note that it is impossible for the team or any other team/firm to review the fees being charged by every wealth advisor that operates in America.
In determining the wealth management fees presented in this report of how much it costs to get a financial advisor, we used a random sampling approach in selecting the advisory firms whose fees were included in our dataset population.
The team’s random sampling approach was based on a fundamental principle called equal probability of selection: when every financial advisor across the U.S. has an equal probability of being selected in a sample dataset, then that sample dataset will be representative of the entire financial advisory population.
This is similar to how election polls are conducted today, in which a set number of people (e.g., 1,000 people) are polled to get a national average.
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Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
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