Financial advisors play a valuable role in helping their clients manage their wealth, plan for retirement, and achieve their financial goals. Fiduciary financial advisors take this role one step further with their professional commitment to always act in their client’s best interests.
While fiduciary financial advisors are similar in their obligation to put their clients first, there are notable differences in how they structure their fees. It’s important to understand the types of fees that fiduciary advisors charge, what they’ll cost you, and how they may impact your portfolio so that you can make knowledgeable decisions about your financial future.
Understanding Fiduciary Financial Advisors
A fiduciary financial advisor is legally and ethically bound to work in your best interest. They’re expected to exercise a duty of care and commitment to their client at all times. This means always prioritizing their client’s financial well-being over their own financial gains or the financial interests of their firm. Fiduciary financial advisors are legally required to abide by their fiduciary duty.
This commitment to your best interest also influences how fiduciary advisors approach their fees, as they must structure their fees with your best interest in mind as well.
Commission-based financial advisors receive commissions on investment products they recommend or sell to you, which can create conflicts of interest. They’re required to follow a suitability standard, which means the products they promote have to be suitable for your circumstances. However, there may be better options that meet your needs that they don’t recommend because there’s no direct benefit (commission) to them.
In contrast, fiduciary financial advisors are fee-only advisors, and their compensation structure is designed to align with what’s in your best interest. Fee-only fiduciary advisors are compensated directly by you for their investment management and financial planning services; they can’t make money on commissions. You’re essentially paying for their time, advice, and management of your assets.
How Much Does a Fiduciary Financial Advisor Cost?
The cost of a financial fiduciary advisor depends on the type of fee structure they charge. Understanding the costs and impact of the varying fee structures can help you make an informed choice regarding your financial planning needs. The types of fee structures for fiduciary advisors include:
- Percentage of Assets Under Management (AUM): This is the most common fee structure used by fiduciary financial advisors, which involves charging a percentage of the total assets they manage for you. This fee structure aligns the fiduciary advisor’s compensation with your investment growth: when your portfolio performs well, they mutually benefit from its success.
- Flat Fees: With a flat fee structure, you pay a fixed amount for the investment management and financial planning services provided by the fiduciary financial advisor. Rather than have your fee be a percentage, the flat fee will be determined by a fixed fee bracket based on the total assets managed.
- Hourly Fees: Some financial fiduciary advisors charge an hourly rate for their services. The hourly fee isn’t tied to your investments. This type of fee structure can be appealing if you’re seeking specific financial advice or one-time consultations and not looking to establish a long-term, ongoing relationship with your fiduciary advisor.
For fiduciary financial advisors, being straightforward and transparent about their fee structure is a fundamental aspect of their duty to you. They’re required to disclose clear, up-front, and honest information about their fees, and regulatory and industry standards reinforce this commitment to transparency.
What Is the Average Fee for a Fiduciary Financial Advisor?
The cost of a fiduciary financial advisor can vary based on individual circumstances, such as the complexity of your financial situation, the amount of assets that will be under management, the services provided, or the fiduciary advisor’s experience. However, it’s worthwhile knowing the industry averages for the different types of fee structures. According to a recent industry study, here are the average fees for fiduciary financial advisors:
- Percentage of Assets Under Management: The average fiduciary financial advisor fee based on a percentage of assets under management (AUM) ranges from 0.59% to 1.18%. The lowest fees are for higher investments above $10 million. The average fee for a $100,000 account is 1.12%, or $1,120.
- Flat Fees: The average flat rate fiduciary financial advisor fee typically ranges from $7,500 (if you have below $500 to invest) to $55,000 (if you have over $7.5 million to invest). This fee can fluctuate depending on where you live and the financial planning and investment management services you select.
- Hourly Fees: The average hourly fee fiduciary advisors charge ranges between $120-$300 per hour. This fee can also vary depending on geographical location.
Comparing the Costs of Fiduciary Financial Advisors
It’s a good idea to compare the different fee structures and costs of fiduciary financial advisors when you’re researching multiple advisors. By doing so, you can make sure that you’re getting a competitive fee while still receiving high-quality advice and services from a fiduciary advisor.
If you’re looking to build a relationship with a fiduciary financial advisor and receive ongoing advice and management, consider carefully flat-rate fee models versus percentage of assets under management (AUM) fee models. A flat fee structure can end up costing you more or less than an AUM structure, depending on where your assets fall on an advisor’s flat fee bracket. It’s important to carefully review how the flat fee compares to the calculated percentage when considering your assets under management.
Five Pine Wealth Management: Working with You as Your Fiduciary Financial Planner
The fees you pay for fiduciary financial advisory services should be viewed in the context of the value they provide. A fiduciary financial advisor’s commitment and dedication to acting in your best interest can result in a successful investment strategy or financial plan that’s well worth the cost.
We consider all aspects of your individual situation and goals and develop customized solutions tailored to meet your financial and investment needs.
We have a fee-only model to best serve you. It aligns your best interest with our interests and puts us on the same side of the table as you. To find out how we can work with you as a fiduciary financial advisor, please contact us today.