For someone seeking to get a start on major money projects, hiring a financial planner is a good first step. A financial planner will first assess her client’s financial situation. Then, she will develop a comprehensive plan for money management and working toward a savings goal. This is great to have – but how much does a financial planner cost? The answer depends on on a few factors, including how the planner charges for her work and whether her advisement will be one-time or ongoing.
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For a quick answer, most financial planners will charge between $1,500-$2,500 for a one-time, full financial plan, or 1% of managed assets for ongoing work. However, these are just estimates and these costs vary.
What Does a Financial Planner Do?
A financial planner assesses the client’s full financial status and then develops a plan based on a goal. This can be as broad as saving for retirement or developing an investment plan, or as narrow as paying down a specific amount of debt, or setting up a college fund. Either way, the financial planner looks at all of his client’s assets and debts and creates a written-out money management plan.
The best financial planners are ones that have earned their CFP certification. A CFP is a certified financial planner, and earning the certification requires taking coursework in personal financial planning and passing a rigorous examination. The certification also demands thousands of hours of experience and adherence to a code of ethics. In addition, CFP holders need to complete 30 hours of continuing education in the financial planning field every two years, ensuring that their knowledge stays current.
“Financial planner” and “financial adviser” are sometimes used interchangeably. However they are not the same thing. A financial adviser is any financial professional who works with clients and their money. A broker, an accountant, and an insurance agent are all financial advisers. A financial planner is a specific type of adviser who provides his client with an actual financial plan.
What Is the Payment Structure?
The reason financial planner costs varies so greatly is because there are several different ways planners collect payment.
Some financial planners are fee-only. Fee-only financial planners earn money by offering advice and developing plans. Their pay structure can be hourly, project-based or a percentage of managed assets. Often, the structure changes based on the complexity of the financial situation. If a client is simply looking for an analysis of his or her financial situation and a plan for moving toward a goal, the financial planner’s cost will likely be a project-based flat fee. This fee might be calculated based on a hourly rate and an estimate of how long the project will take. A financial plan can take a planner 12-15 hours to develop, at a typical hourly rate of $100-$250.
Financial planners who provide ongoing support and money management will likely charge their clients a percentage of managed assets, which means the total amount of money they are analyzing and investing for the client. They may also charge a monthly retainer for their services. The percent cost here typically starts at around 1%, and lowers for larger asset pools.
Another payment option for financial planners is fee-based. Fee-based financial planners charge for developing plans, just like fee-only planners. When helping to implement the plan, they earn money in other ways, including receiving commission on sales.
Finally financial planners may be commission-based. Commission-based financial planners earn money based on the finance products they sell. If a financial planner is also an investment adviser, for example, and she recommends a certain stock or fund, she earns money based on selling her client that stock or fund.
So How Much Does a Financial Planner Cost?
There are different fees for creating a financial plan and managing a financial plan. Hours worked, assets managed or products bought determine the fees. The most straightforward financial planners are fee-only and are fiduciaries. A one-time financial plan by a fee-only financial planner can cost anywhere from $1,000 to $3,000, depending on the complexity of the situation and the plan. Ongoing money management, investment advice and redrawing of the plan will cost a retainer fee.
Financial planners may charge a percentage of assets under management instead, which typically starts around 1% and decreases as the portfolio increases. For management of $100,000, the fee would be $1,000 at a 1% rate. For management of $1,000,000, the rate might drop to 0.6% and the fee would be $6,000.
Commission-based advisers may offer an initial consultation and plan for free. They earn their payment by investing their client’s funds in financial products, like mutual funds or bonds, and get a percentage of the sale as commission. Thus, size of the purchase determines their fee.
Financial planners’ fees can vary based on their payment structure and work offered. As always, those who are shopping for a financial planner should do research and look around. The best financial planners have a CFP certification and several years of experience.
A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you answer a series of questions about your situation and your goals. Then the program narrows down thousands of advisors to three fiduciaries who meet your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while doing much of the hard work for you.
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