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How much does it cost to hire a financial advisor?

Written by: Wealth Village Editorial Team

How much does it cost to work with a financial advisor? Well, it depends…

The Securities and Exchange Commission (SEC) requires that financial advisors act as fiduciaries, which means they must act in their clients' best interests. However, the SEC does not specify how much financial advisors should charge clients. This is left up to the discretion of the advisor.

Before you make a decision to hire a financial advisor, it's important to understand the different types of fees that may be associated with their service. We at Wealth Village recommend asking the advisor for a written breakdown of their "all-in fee". This should include:

Fees and Expenses:

  • Advisory fees: This is the fee that the financial advisor charges for their services, which can be a flat fee, an hourly rate, or a percentage of assets under management (AUM).
  • Investment expenses: There may be additional expenses associated with buying and selling securities, such as commissions and trading fees.
  • Third-party fees: The financial advisor may use third-party investment products, such as mutual funds or exchange-traded funds (ETFs), which have their own fees and expenses.
  • Miscellaneous fees: There may be other fees associated with working with a financial advisor, such as fees for financial planning services or for preparing and filing tax returns.

Watch out for ‘Commissions’

  • Pay close attention to investment expenses, particularly commissions. Commissions refer to compensation that an advisor receives from a third party when you procure that third party’s service or product through your advisor.
  • As a Fiduciary, your advisor is legally bound to act in your best interest, which means only recommending the financial products, services, and transactions best align to your investment goals. However, if a financial advisor receives a commission or other type of financial incentive for recommending a particular investment product, they may be more likely to recommend that product to you, even if it’s not in your best interest. This could lead to higher investment expenses, which could reduce the overall return of your portfolio

Protecting Yourself from Unnecessary Financial Advisor Commissions

  • Ask your advisor for their conflict of interest policy and how they manage any conflicts that may arise, particularly regarding recommending products and services for which they earn a commission
  • Anytime your financial advisor recommends any action or service, ask them what commission do they receive if you follow that specific recommendation
  • Ask your Financial Advisor if there is a product that provides nearly the same benefit that would cost you less (including your commission fees).

Hiring a financial advisor can be a great way to gain professional guidance in managing your finances, but it's important to understand the costs associated with this service. Understanding the different types of fees and being aware of the potential for commissions can help you make an informed decision and protect yourself from unnecessary costs. By asking the right questions and being vigilant, you can be confident that you are getting the best service for your money.

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