I Have $2.2 Million Invested With My Advisor Who Charges a 1% Fee. Am I Paying Too Much?

When it comes to advisor fees, there are two numbers to keep in mind: 1% and 0.02%.

The first is the average fee that financial advisors tend to charge. If you are looking for comprehensive financial management, in general you should expect to pay about 1%. The second is a representative fee for a well-indexed S&P 500 fund. If you are only looking for investment management, someone to grow your portfolio, this is the number they need to compete with.

Here, let’s assume you have $2.2 million in assets. Your financial advisor manages all of that and charges a fee of 1%. That might be a good, albeit not great, price depending on what you are looking for.

If you’re interested in exploring how a financial advisor can help you, you can speak to a fiduciary advisor for free.

How Are Advisor Fees Structured?

As an industry, financial advisors have four main fee structures. Most advisors use a combination, charging different fee structures for different services.

Flat Fee

This is a fee-for-services model. The financial advisor will charge you a fixed fee to work on a specific project. For example, they might charge you a flat fee to do your taxes.

Hourly Rate

Here, the financial advisor bills for each hour worked. Most will measure their work in six minute increments, the standard for professional services in the United States. For example, they might charge you an hourly rate for general financial planning services.

Hourly rates can also be structured under a retainer model, where you pay a fixed amount up front and then receive services billed against that initial payment.

Commissions and Performance

Under a commission structure, the financial advisor receives payment each time they conduct a financial transaction on your behalf. Typically this is measured as a percentage of that transaction.

Under a performance structure, the financial advisor receives an additional payment if they meet a specific financial benchmark. For example, they might receive a performance payment for beating the S&P 500’s returns in a given year.

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