According to a Harris Poll survey, 60 percent of respondents had no idea how much they were paying in fees or how the fees were charged on all their financial accounts. It might sound surprising, but advisors or other financial consultants can be compensated in a number of ways, which can make understanding or talking about these fees all the more confusing.
From a flat fee to commission and even a combination of both, it’s vital to understand the different types of financial professionals and financial advisors and how they charge so you can find the best fit for you.
Whether you’re already working with a financial professional, like Trust Point or Emerj360, or are still considering your options, make sure you understand the fee structures so you can be sure that your money and your financial partner is working in your best interest.
What are the types of financial advisors?
Everyone’s financial situation is unique, which will influence the type of advisor you can both afford and feel most comfortable with. Before delving into the cost, here’s a quick reminder of the most common types of financial advisors:
Commission-based financial advisors
Financial advisors working on commission tend to be brokers compensated based on product sales. While they receive payment when you make an investment on their recommendation, typically their commissions are paid out by the investment product sponsor. In most cases, the advisor will receive an initial disbursement when the investment contract is signed and an additional annuity for every year that contract remains active.
Fee-based and fee-only financial advisors
Some financial professionals will charge a set fee—either an hourly rate, a project fee, or a percentage of assets—for their services.
Additionally, some advisors may operate strictly on a single fee structure, while others may combine them. Fee-only advisors only receive compensation from fees they charge you for managing your money.
The financial professionals at Emerj360 follow a fee-only structure based on the size of your portfolio. Emerj360, and its parent company, Trust Point, are fiduciaries. Our independent structure means we aren’t selling proprietary products and we don’t make our investment decisions or make money based on any revenue-sharing or commissions. This allows us to always put the needs of our clients’ first and avoid any conflicts of interest.
Dual-registered advisors
In some cases, fiduciaries may be dual-registered, meaning they are registered as both fiduciaries and brokers. This means they can act as fiduciaries when creating your financial plan and also draw a commission from the investments they put you in when putting the plan into action.
What should I expect to pay?
Unfortunately, there is no “normal” fee that financial advisors typically charge. Because of the variety of fee structures, certifications, services offered, and geographical differences, fees can vary significantly.
However, there are some standards that you can expect. Most financial advisors and financial professionals charge based on how much money they manage for you, a fee structure called “assets under management,” or AUM. That fee can range from .5% to 1.25% per year, while advisors who charge flat fees can cost between $2,000 and $7,500 per year.
Although ranges in pricing can feel extreme, keep in mind that you want to find the financial professional that best suits your needs. Start by considering your financial goals and what you’re willing to pay to help achieve those. If you’re just starting out and looking for basic investment management, a flat fee is likely cost prohibitive. However, simply using the cheapest advisor might also mean working with someone with less experience, provide less service, or even provide advice that could put you into investments that aren’t necessarily best for you, but are suitable for your situations. Ask more questions and understand any conflicts of interest that may exist before you decide.
Questions to ask to avoid bad financial planning pricing models
To find your best match, first consider the type of help you want and then consider asking candidates some of the following questions to avoid falling into any bad pricing models or scams:
Can you break down the expected fees?
Fiduciary duty has always been at the core of what Trust Point and Emerj360 do every day. It’s important that you feel confident and informed about our working relationship, and we’re happy to provide you with any information you need to make the best decisions for your financial future. Fees are 100% transparent and disclosed. Ensure to ask your potential financial professional for their response.
Are you a fiduciary?
You will benefit from having a fiduciary financial partner. Trust Point and Emerj360 are a fiduciary. In most cases, fee-based and fee-only financial advisors are fiduciaries, which means they are legally required to act in their client’s interest, building plans and choosing products that are ideally suited to your needs. Trust Point and Emerj360 take the fiduciary responsibility a step further. We only act in your best interest, making investment choices that are best for you and your family.
What type of clients do you typically work with?
Find a financial professional who is used to a situation like yours and is able to help you meet your goals.
What’s your investment strategy?
It’s important to ensure your investment philosophy aligns with the investment professional you work with.
How often do you communicate with clients?
You want to know how often you’ll meet and if you can reach them outside of regular office hours or periodic appointments.
What are your qualifications?
Regardless of title, make sure to vet your potential financial professional. Ask them for referrals. Some financial professionals, like registered investment advisors, or RIAs can be found on the Financial Industry Regulatory Authority’s (FINRA) professional designations database. This can help you understand their credentials, education requirements, accreditation, and their professional status. However, just like fees can be unique for different financial professionals, the regulating authority can also be different. Trust Point and Emerj360 are regulated by the Department of Financial Institutions, which have a set of strict rules and regulations to abide by. While you will not locate the financial professionals at Trust Point or Emerj360 on FINRA, you can find similar information on the Department of Financial Institutions website.
Understanding the different types of financial advisors and various questions to ask will guide you on your way to finding a partner who can help you create a plan to reach your financial goals.
