Advisors run their businesses independently. Each advisor’s practice can be different. Here I’m describing the general practice.
Get-Acquainted Meeting and Quote
Most advisors offer a free first meeting. This gives you a chance to know each other and evaluate mutual fit. Meet with several candidates before you make a decision on which advisor you will pick. If the advisor is local, you can meet face to face. If the advisor is remote, it can happen by phone or via online video conferencing (Facetime, Duo, Skype, WebEx, GoToMeeting, …).
After hearing where you are at and what you need, the advisor typically gives you a quote based on their hourly rate and the estimated number of hours to complete whatever you are asking them to do. The estimated hours include both the time the advisor will meet with you and the time the advisor will work with your data and write the analysis and recommendations.
Hourly rate can be from $100 to $400. A consultation in one focused subject area can be 2 hours. A full comprehensive financial plan with analysis and recommendations for all subject areas can be 20-30 hours.
Fixed or Capped Fee
Some advisors will quote you a fixed or capped fee. When it’s fixed you pay that price no matter how many hours it takes. When it’s capped, if it takes fewer hours you will get a lower bill but if it takes more hours you won’t pay any more than the quoted cap. Either way you don’t have to worry about the advisor stopping the work in the middle and asking you to authorize more because they run out the estimated hours.
When you get the quote, make sure to confirm whether it’s fixed or capped.
Some advisors create packages for most frequently requested services. Here’s a sample of some packages I saw from one Advice-Only financial advisor based on a billing rate of $200/hour:
|Investment Portfolio 2nd Opinion Review||$400|
|Custom Investment Plan||$2,000|
|Retirement Plan and Cashflow Analysis||$2,000|
|Full Comprehensive Plan||$3,500|
Updates, Reviews, and Checkups
After you get the advice and you follow the advice, as things change, or if you just want to have a review, you are of course welcome to book a review session with the advisor however often you feel necessary.
The same advisor I used as an example above charges $600 for a review, which is based on 1 hour for meeting with you and 2 hours for analysis and assessment.
Much Less Than % of Assets
Although the up front cost can sound high — from several hundred dollars to several thousand dollars — it’s substantially less than the commission and the jacked up expenses in products other advisors sell to you or the recurring assets under management (AUM) fees calculated as a percentage of your assets.
Someone may tell you a 1%-of-assets fee is “standard.” 1% sounds small and it comes out of your investment gains, which makes it feel almost like a tip to the dealer at a casino for doing well. But simple math tells you it’s multiple times higher than the transparent fees charged by Advice-Only financial advisors.
1% of $250,000 is $2,500 per year, each and every year. 1% of $1 million is $10,000 per year, each and every year. The asset-based fees also automatically grow as you invest more and as your assets grow. After you get the advice and you follow the advice, you are supposed to go on periodic reviews at say $600 per session maybe once or twice a year. Or once in several years when everything is on track. With an advisor who charges you on a percentage of your assets you will be paying thousands or tens of thousands of dollars each and every year. You just don’t feel it when it’s automatically taken from your investments.