One of the main factors people consider when deciding whether to hire a financial advisor is cost. But costs can vary significantly from one advisor to the next. Here’s what you need to know about the costs of hiring a financial advisor, and how the different fee structures work.

Types of financial advisor fee structures

How much you’ll pay for a financial advisor depends on their fee structure. Some advisors charge a fee based on how much money they manage for you, while others charge a flat annual fee or an hourly rate. It’s important to know how your advisor’s fee structure works so you understand how much you’re really paying for their service.

Here’s a breakdown of the different fee structures financial advisors use to charge clients.

Assets under management (AUM)

One of the most common fee structures used by financial advisors is assets under management, or AUM. It’s a percentage of all the money they manage for you, aka your total assets. You can expect to pay an AUM fee of 0.25 percent to 1 percent. That might not sound like much of a difference, but higher fees can seriously chip away at your portfolio’s returns as it grows over time.

A traditional human advisor will typically charge around 1 percent of assets, but that number could be higher or lower depending on the advisor and the services offered. So, if you had $100,000 with a financial advisor who charged 1 percent, you’d pay an annual fee of $1,000.

Robo-advisors, which use an algorithm to build portfolios for clients based on their goals and risk tolerance, charge a lower AUM fee than human advisors. Robo-advisor fees typically range from 0.25 percent to 0.50 percent and you can often get started with small amounts of money, whereas human advisors typically want to see at least $100,000 or more before they’ll start working with you.


Financial advisors may also charge by the hour, with rates ranging from $200 to $500 and up. Hourly fees might be used for specific projects, such as developing an overall financial plan or estate planning. An advisor may spend several hours preparing a plan and then schedule a one-hour meeting with you to go over the plan’s details.


Some advisors may operate on a fixed-fee structure which means the fee is stated in advance and doesn’t change based on the amount of assets a client has with the advisor. For example, an advisor may charge an annual fee of $7,500 for their services. This might sound like a lot of money to pay, but for someone with assets of $1 million, it translates to an AUM fee of 0.75 percent, which is less than the typical advisor fee. Typically, the flat fee declines as the client’s assets continue to grow.


You should be particularly skeptical of advisors who earn a commission-based fee. It likely won’t cost you anything to meet with an advisor who works on commission, but that’s because they’re financially compensated by an insurance company or a financial firm to sell certain investments or policies — even if those products are expensive and don’t align with your best interests.

If possible, you should avoid hiring an advisor who earns commission-based fees and try to find an advisor who is a fiduciary, which means they’ll put your interests before their own.


Some advisors may earn an additional fee if your portfolio outperforms certain benchmarks, such as the S&P 500. These are additional fees that will eat into your investment return, but because they’re performance based, you’ll only pay them if your advisor helps you generate outsized returns. Be sure to check that the thresholds for earning the fees actually align with outperformance, however.

Why financial advisor fee structures matter

It’s important to understand the various fee structures financial advisors use because fees limit the investment returns you ultimately earn. You could end up paying hundreds of thousands of dollars in financial advisory fees over your lifetime, so understanding why you’re paying them can help you determine if a financial advisor makes sense for you.

Sometimes, the fee structure can be a red flag in and of itself, such as with commission-based fee structures. You want an advisor who makes recommendations based on what’s best for you, not based on how much they’ll earn in commissions. Fee-only advisors don’t earn commissions based on the types of products they sell, so they’re less likely to have conflicts of interest.

Other financial advisor costs to consider

While the fee you’ll pay to a financial advisor is important to consider, it’s not the only fee you’ll have to worry about. Once you’ve selected an advisor, they’ll recommend and help you invest in mutual funds or ETFs that also charge their own set of fees. Some funds may come with an additional 1 percent annual fee, while others, such as index funds, typically have fees of 0.10 percent or less.

Be sure to ask your advisor about the fees on the funds they’re recommending and ask if there are index funds that can be used to construct your portfolio that will help keep costs down. Remember that, all else being equal, the higher the fees you pay, the lower your returns will be.

Is it worth paying for a financial advisor?

There are advantages and disadvantages of using a financial advisor, but if you’re unsure about how to manage your finances, working with an advisor can be beneficial. They can help you develop an overall financial strategy and give you confidence that you’re on the right track or identify areas to improve.

If you’re just starting out, consider getting started with a robo-advisor. You can build an investment portfolio that’s aligned with your overall goals and can always switch to a traditional human advisor down the road if that makes sense for you. Until then, you can save on fees by working with a robo-advisor.

More experienced investors or those with a financial background may not need to work with an advisor at all and can save on costs by managing their finances themselves. But good advisors earn their fees over time by helping you stick to your plan, especially during market downturns when it can be easy to panic, and thinking about risks so you don’t have to.

Bankrate’s financial advisor matching tool can help you find an advisor in your area.

How much should you spend on a financial advisor?

As a general rule, you probably shouldn’t pay more than a 1 percent fee to an advisor unless they’re providing additional services.

If you’re just starting out, a robo-advisor may be your best choice to help keep costs down as you build your portfolio.High net worth investors may benefit from a fixed fee that stays constant as their portfolio grows, whereas a percentage fee based on AUM will rise alongside their portfolio.

Bottom line

How much you should spend on a financial advisor will depend on your unique circumstances. Most advisors charge a 0.25 to 1 percent fee to manage your assets, though some may charge an hourly rate of $200 to $500, and others may offer an annual retainer of $7,000 or more. Be sure to watch out for advisors that earn commissions based on what products they get you to invest in. You want an advisor that looks out for your best interests.