How Much Does a Financial Advisor Cost?

If you’ve never worked with a financial advisor before, you may have a lot of questions about the process—not the least of which is: How much does a financial advisor cost?

Financial advisors make money in different ways, and often, fees depend on what you’re asking your advisor to do for you. Fees can also depend on how much your assets are, as generally, the more money you have, the more moving pieces you have and there’s more work required to help you manage your assets. There’s also the possibility that your advisor may not charge you a fee.

Here are some situations in which you may need to pay an advisor and how those fees might look.

When you get a financial plan

Financial planning is about helping you make the most of your money so that you can balance the life you want now and in the future. When a financial advisor is doing planning with you, they will ask a lot of questions about where you are now and where you want to be. Then they will work with you to put together a plan to help you get there.

When you do financial planning, there are two main ways an advisor gets paid.

• Fee-Based Planning. You pay your advisor out of your pocket for your financial plan. Fee structures can vary from a single flat fee to an ongoing fee or even an hourly rate. But often, the fee will depend on how many moving pieces—assets—you have. If you’re only talking about employer-sponsored retirement plans and one or two other assets, you might pay as little as $1,000, but if you’ve got a higher net worth and more assets, you could be paying $2,000 - $5,000. Fees will truly vary by advisor and by your situation.

• Product Commissions. Many financial professionals offer free financial planning because they will earn commissions or fees on the financial products you buy from them. This approach allows you to get professional advice about your financial situation with no out-of-pocket cost. Some criticize this approach, saying that commissions may bias an advisor to sell you one product over another. However, many advisors who offer this kind of service have designations like CFP®, which require them to work in your best interest.

When you buy insurance

Most financial plans include life, disability and other insurance to provide flexibility, stability and protection from unknowns that can harm your financial situation. By looking at all of your assets together, a financial advisor is in a really good position to help you understand what you need and what will best cover you.

The way your advisor is paid when you buy insurance is simple. The insurance company will pay your advisor a commission that’s covered by the premiums you pay for your insurance; you don’t pay anything additional out of pocket. This is true for all different types of insurance policies.

When you are investing

When working with an advisor, you can either choose to just receive investment advice from your advisor or have your advisor manage your portfolio. If your advisor is managing your portfolio, there are different ways they may charge for their services:

Commission or Sales Load. You pay a fee when you buy or sell investments—including stocks or mutual funds. This is often referred to as a sales load. The fee is usually a flat amount or a percentage of your investment. Loads come in two key forms:

• Front Load. With a front load, you give your financial advisor a certain amount, let’s say $10,000. You will only see $9,500 deposited in your account; the remaining $500 will pay for the expense of your advisor.

• Level Load. A level load is a fee (e.g. 1 percent per year) deducted annually from your investment fund for as long as you own the fund to cover fees for the fund manager.

Advisory. In an advisory arrangement, you will pay a fee each year. This is typically a percentage of the amount of assets you have under management. In most cases, this fee is somewhere around 1.5 percent or less of your total assets each year. So if you had $100,000 in assets with an advisor that charges 1 percent per year, your annual fee would be $1,000.

What’s a typical fee for a financial advisor?

Potential fees can really vary widely depending on your situation and what you’d like an advisor to do for you. How much money you have to manage is another key factor in determining financial advisor fees: The more money you have, the more you should be prepared to pay. If you’re just starting out, you may pay as little as $1,000 per year, but a wealthier client with an advisor managing all their assets could pay a much higher fee.

What’s the value of working with an advisor?

It is certainly possible to buy insurance and investments without an advisor, but doing so requires some financial knowledge and time. Though in some cases you’ll need to pay for someone else to do these things, you’re paying for an expert who will get to know you and can lean on their industry expertise and knowledge to build a plan to help you reach your financial goals.

The first step in working with a Northwestern Mutual advisor is for your advisor to get to know you and your financial goals. In doing this, they’ll be able to create a fully personalized plan that includes both growth strategies (like investing) and layers of protection (like life insurance) to help you achieve all you want to in life.