How much does it cost to work with Financial Advisor?

Most people contemplate whether it’s worth hiring a financial advisor and many a time we challenge ourselves by taking the matter of our financial future into our own hands. In fact, planning retirement without the guidance of a financial expert has emerged as a common problem.

So, why do most individuals prefer to walk the financial road alone? Some believe the fees of financial advisors to be exorbitant, while others think the recommendations they offer often surpass an advisor’s cost. A few people also struggle to find the right one or are unsure how to assess their pricing and proficiency. But truth be told: with the right planning and insights from the appropriate advisor, you can easily fulfill your monetary targets.

Common Ways a Financial Advisor is Compensated

Whether you are seeking an in-person financial planning service or a virtual one, be sure to know how much you will pay the financial expert or wealth management company and what their services entail.

1. Commission-Based Fee

Many financial advisors charge a flat percentage or a rate for the sale or purchase of an investment you make through them. These charges are known as “commissions” that can range anywhere from 0.25 to 1 percent of the investment price. This commission rate may also vary, depending on the investment type. For instance, the commission on mutual funds is slightly higher, yet, it is a one-time fee charged at the time of purchase or sale. What you must be wary about is whether or not the commission is going to be directly paid to the financial expert from the wealth management company. This will help you evaluate if the investment tips they are offering are genuinely right for you or if they are simply excellent salespeople looking to close a deal.

2. A Fee-Only Advisor

A fee-only financial expert, as the name suggests, gets their remuneration only through fees from the client (which is you). So, if you hire a fee-only advisor, you either pay a flat fee or on a project or on an hourly basis. This is the compensation they receive. They don’t promote or sell financial products that could earn them a commission. One of the biggest benefits of working with a fee-only financial advisor is that we can expect uniformity in terms of services, irrespective of the size of our assets or investments as clients.

3. A Fee-Based Advisor

Unlike the fee-only advisor who settles on hourly or project-based pricing, fee-based financial advisors charge an annual fee equivalent to the assets they manage. Say, for example, you have entrusted assets worth Rs. 1 crore or more to a fee-based financial expert to manage, then they are likely to charge an annual fee of 1 to 2 percent of the assets. The fees do not vary depending on the performance of your portfolio. This means you are obligated to pay a fee to the financial advisor even when your portfolio faces losses. The good part is: that all fee-based financial advisors are listed on Registered Investment Advisors (RIA) under SEBI, which strengthens their authenticity.

4. Performance-Based Fees

These kinds of financial advisors typically have a two-tiered fee structure. In one case, they charge a base fee that is linked to your assets. For instance, the annual base fee could be 1 percent of your assets and a 20 percent share in profits if the portfolio returns are about 10 percent. While it appears like a lucrative deal for investors, it also involves the risk of the financial advisor jeopardizing your portfolio to earn more returns and invariably, fees. In this scenario, many investors would prefer choosing flat-fee charging financial experts. This works well if you have a reasonable size of the portfolio.

Additional Financial Advisor Costs you May Incur

If you thought that the financial advisory fee is the only thing to be considered, that’s not true. There are more costs that you may need to be prepared for. As an investor, you are also responsible for brokerage, custodial and third-party fees. For example, if the financial advisor invests in mutual funds or equity on your behalf, you will have to bear the costs associated with these funds apart from the fee paid to the advisor.

Takeaway

The choice of a financial advisor is dependent on your requirements and what you are comfortable with. However, it is important to hire them only after carrying out due diligence. Keeping the following tips in mind when finding a financial advisor can help you choose the right one and minimize advisory fees:

1. Approach a few advisors before narrowing down on one. Compare their portfolio, years of experience, fees, and market reputation.
2. Look for professional certifications and designations that the financial advisor holds.
3. Know which services you will need and if the advisor or wealth management company offers those.

Get in touch with Dezerv in this regard and get help in achieving your financial goals!