To choose the right way to compensate a financial advisor, you must understand the various ways that financial advisors charge fees.
Financial advisors may charge fees in any of the following ways:
- An hourly rate
- A flat fee to complete a specified project
- A quarterly or annual retainer fee
- A fee charged as a percentage of assets that they manage on your behalf (Typically anywhere from 1% - 2% per year. The more assets you have, the lower the fee.)
- Commissions paid to them from financial or insurance products you buy through them
- A combination of fees and commissions
You will find details on each of the fees listed above in 6 Ways Financial Advisors Charge Fees.
Important:Always ask a financial planner for a clear explanation of how they are compensated.
You will also find it useful to understand the difference between a fee-only and a fee based advisor. Once you understand the difference, I would recommend you look for a financial advisor who is fee-only.
