investing

How much do financial advisers charge?

Don TaylorDear Dr. Don,
How much do financial advisers typically charge to manage your portfolio?

Thank you,
-- Colleen Commission

Dear Colleen,
That's not a simple question, unfortunately. The National Association of Personal Financial Advisors, or NAPFA, lists three different compensation models: fee-only, fee and commission, and commission.

But it gets more complicated from there. A fee-only adviser, for example, can get paid several different ways, including hourly consulting fees, a flat fee, and other models such as assets under management, or AUM, assets under advisement, or AUA, or retainer-based.

And sometimes the compensation will vary depending on how much you're willing to invest. Under the AUM model, for example, financial advisers are compensated by a set percentage of a client's invested assets. The more money that's being invested, the more the client is able to negotiate a lower AUM percentage. If you're someone who doesn't have a high net worth, you can expect to pay anywhere from 0.25 percent to 2 percent annually for an AUM account.

NAPFA's guide, "Pursuit of a Financial Adviser Field Guide," can help you choose a financial adviser that's right for you. You can download the guide for free on its website. The Certified Financial Planner Board's website will also help you learn about financial planning. Its "Consumer Guide to Financial Self-Defense" is available as a download.

Understand the differences between a financial adviser and an investment manager. The investment manager is solely responsible for how you're invested. The financial adviser may wear that hat along with several others, such as helping you with insurance requirements and developing a household budget.

Make sure you understand the standards your adviser is following. Financial professionals follow different standards that may impact their performance. If they follow a fiduciary standard, they must put their client's interests first. Registered investment advisors, or RIAs, are held to a fiduciary standard. Other advisers follow a suitability standard, which means they're required to choose investment products that are "suitable" for their clients based on the client's investment objects and their means.

If you'd still like to hire a financial adviser, make sure the adviser tells you which standard he is being held to, and get his answer in writing.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

Should lucky gambler play the market?

Dear Dr. Don, I recently got lucky at a casino and won $8,000. I have a car loan and carry balances on my credit cards, but I never miss a payment. I don't want to blow all the winnings by paying down unpaid debt for my... Read more

advertisement

Blog

Dr Don Taylor

The Fed and its punch bowl

The Fed is likely to modify the phrasing of its policy statement to signal that an increase in the targeted federal funds rate is not a "considerable time" off in the future.  ... Read more

Partner Center
advertisement

Connect with us