Understanding Financial Advisor Fees: What You Need to Know
When it comes to managing your finances, finding the right financial advisor can be a crucial decision. But have you ever stopped to think about how they get paid? The truth is, there are several different fee structures that financial advisors use, and understanding them can help you make a more informed decision about who to work with.
The Dominant Fee Structure: Assets Under Management (AUM)
According to a recent report by Kitces, the majority of financial advisors use a fee structure based on Assets Under Management (AUM). This means that they charge a percentage of the total value of your portfolio that they manage. For example, if you have $100,000 invested and they charge a 1% fee, you’ll pay $1,000 per year. While this structure can incentivize your advisor to grow your wealth, it may not be the best fit for everyone.
Other Fee Structures: Retainer, Hourly, and Commission
In addition to AUM, financial advisors may also use retainer fees, hourly fees, or commission fees. Retainer fees involve paying a fixed amount upfront, which is then billed against on an hourly basis. Hourly fees are straightforward, with advisors charging a set rate for each hour worked. Commission fees, on the other hand, involve charging a fee per transaction.
What to Look Out for with AUM Fees
While AUM fees are common, there are a few things to be aware of. Some advisors may layer AUM fees on top of other service charges, so make sure you’re getting full value for your money. Additionally, your portfolio’s “all-in fee” may be higher than the AUM fee alone, thanks to expense ratios for managed assets like ETFs, mutual funds, or REITs.
Navigating Fee Structures
So, how do you navigate these different fee structures? Start by asking questions. Interview potential advisors, ask about their fee structures, and how they deliver value in both good and bad markets. Think about what you need from an advisor and look for someone who will charge you a fair price for those services.
Finding the Right Financial Advisor
Finding the right financial advisor means finding someone who is a good fit for you and your goals. By understanding the different fee structures and what you need from an advisor, you can make a more informed decision about who to work with. Get matched with a financial advisor today and start achieving your financial goals.
Leave a Reply