For some, working with a financial advisor may imply having pockets deep enough to meet with an expert in a mahogany-paneled office. But you don’t always need to be wealthy to access or benefit from financial advising. There are many types of advisors, and most investors can likely find one who works for their specific situation. In fact, many advisors have no minimum at all, or if they do, it might be lower than you expect.
Do you have questions about working with a financial advisor? Speak with an advisor about it today.
How Much Money Should You Have Before Hiring a Financial Advisor?
Investment managers, financial consultants, financial planners and even digital investment management services called robo-advisors are all considered financial advisors. As a result, minimum investment thresholds vary widely.
The amount of money that you’ll need to get approved, as well as how much you should have before it really pays off, might have the same answer. The right amount of money you’ll need will depend on what you’re looking for a financial advisor to do as well as how much you’ll have to pay in fees. Very generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor.
Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could also be higher, such as $500,000, $1 million or even more. In general, if an advisor requires a minimum of $100,000 to open an account, you can likely assume that the financial advisor also offers financial planning services, like tax or estate planning.
However, wealth managers are not the only financial advisors. People with less than $100,000 in assets can also benefit from hiring certain types of advisors. If you have very little in investable assets, working with a Certified Financial Planner™ (CFP®) might be a great place to start. Their education and certification usually means they have a wide range of financial knowledge, even if they’re not full-on experts in all areas. However, just because someone has a CFP® doesn’t mean they’re necessarily easily accessible from a minimum perspective, so be sure to look into the details wherever you go.
According to the Kitces Report, “How Financial Planners Actually Do Financial Planning,” 63% of advisors who charge an asset-based fee have a minimum account size requirement. The typical minimum for these advisors is $100,000, according to the study.
Robo-advisors are also enjoying a surge in popularity, and they too are considered financial advisors, just without the human element. They are essentially algorithm-based offerings that learn about you as a client and manage your money in a more or less automated way. Factors that go into this management include your risk tolerance, time horizon, tax status and more.
Many large investment firms, such as Fidelity, Vanguard, Merrill and Charles Schwab, offer robo-advisory services. Robo-advisors often charge lower percentage-based advisory fees than their human counterparts, but often without the extra commissions that fee-based advisors might charge. They also typically feature very accessible minimums or have no minimum at all.
When Should You Speak With a Financial Advisor?
A good time to speak with a financial advisor is simple: as soon as possible. The sooner you get with a professional, the faster you’ll be able to work on building a plan to reach your long-term financial goals. So whether it be retirement, saving for your child’s college education, buying a home or anything else you have in mind, it might be time to consider talking with an advisor if you’re ready to pursue a goal.
Financial planners may charge a fee to evaluate your financial position and recommend a plan that helps you towards your goals. Lower minimum robo-investing services make it accessible for lower-asset individuals to start building wealth early on, and if you do have a substantial amount of assets, speaking with an advisor can help you decide where and how to manage your money over time.
How Much Do Financial Advisors Cost?
There are two types of financial advisors: fee-only and fee-based. Fee-only financial advisors are typically preferable, because their compensation comes solely from the fees that clients pay for advice. Fee-based advisors, on the other hand, may receive sales commissions for recommending certain products and services in addition to the fees they charge for their advisory services.
Financial advisors may charge an hourly, monthly or flat fee to recommend investments, adjust your asset allocation and manage your portfolio. In the case of robo-advisors, there is often no advisory fee, but you could pay fees to buy and sell their recommended ETFs that may be affiliated with the robo-advisor managing your account.
The same Kitces study found that nearly nine out of 10 advisors generate a portion of their revenue from an assets under management (AUM) fee. On average, approximately 75% of an advisor’s compensation comes from AUM fees, according to the Kitces report.
But how much does a financial advisor cost? According to AdvisoryHQ, the average AUM fee ranges from 0.59% to 1.18% of the client’s portfolio value. For example, an advisor who charges a 1% management fee would take in $10,000 per year on a $1 million portfolio.
Meanwhile, some advisors offer project-based services, like standalone financial planning that doesn’t include ongoing investment management. These costs range from $1,225 to $5,000, although the median fee for a standalone financial plan is $3,000, according to the Kitces Report.
Bottom Line
Financial advisors can help individuals across the board, so don’t wait to speak with one. They can help you reduce debt, save more and invest in ways that might not be possible without their help. You should look for fee-only advisors, as these financial advisors will best represent your interests over the long term.
Tips for Building Wealth
- Not sure what investments and strategies will help you meet your long-term goals? For a financial plan, consider speaking with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s investment calculator to get a good estimate of how to grow your money over time.
Next Steps
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