What's Included in a Financial Advisor's Fee?

A financial advisor's fee typically covers a range of services designed to help you manage and grow your wealth. Advisors can charge individually for these services or bundle them together. The specific services included vary depending on the advisor and their fee structure. A financial advisor's fee may include the following services.

A financial advisor typically starts with a thorough review of your current financial situation, including income, expenses, assets, and liabilities. They may also review and help you define your financial goals, such as retirement planning, education funding, or philanthropy.

A financial advisor's fee may cover holistic financial planning and customized strategies. Advisors may provide a comprehensive approach, addressing all aspects of your financial life, including investments, taxes, estate planning, and philanthropy. They may also provide personalized strategies tailored to your unique financial situation, goals, and risk tolerance. An advisor's fee could also include managing cash flow to ensure liquidity for personal and investment needs and planning for liquidity events, such as selling a business or large investments.

Investment management may involve designing an investment portfolio that aligns with your risk tolerance, time horizon, and financial goals. The advisor may also ensure your portfolio is diversified across various asset classes to minimize risk and maximize returns while also developing strategies to manage and mitigate investment risks. For high-net-worth individuals, a financial advisor's fee may include access to sophisticated investment options, such as private equity, hedge funds, real estate, and other alternative investments. Investors seeking these types of investments should evaluate their advisor to ensure they have the skill set and access to deliver these strategies.

Retirement planning services may include developing strategies to save for retirement, including contributions to retirement accounts like IRAs and 401(k)s. As an investor gets closer to retirement, an advisor providing retirement planning can help prepare an investor to take the step by understanding things such as Required Minimum Distributions (RMDs), social security, and how specific decisions can impact retirement.

A financial advisor's fee may include identifying and implementing tax-efficient investment strategies to minimize tax liability. They may also coordinate with tax professionals to assist with tax return preparation and filing and can help navigate complex tax issues such as capital gains, estate taxes, and international tax considerations.

Estate planning services may include working with estate planning attorneys to create strategies and plans that reduce the impact on estate taxes to heirs and transfer wealth to future generations in a tax-efficient manner. The advisor may also help set up trusts and draft wills to ensure an estate is distributed according to the client's wishes.

If you own a business, advisors can also help develop a succession plan to help ensure a smooth transition and continuity. They may also create family governance structures to manage family wealth and aid in harmonious decision-making.

Investment management may involve designing an investment portfolio that aligns with your risk tolerance, time horizon, and financial goals. The advisor may also ensure your portfolio is diversified across various asset classes to minimize risk and maximize returns while also developing strategies to manage and mitigate investment risks. For high-net-worth individuals, a financial advisor's fee may include access to sophisticated investment options, such as private equity, hedge funds, real estate, and other alternative investments. Investors seeking these types of investments should evaluate their advisor to ensure they have the skill set and access to deliver these strategies.

For investors with children, a financial advisor's fee may include setting up and managing education savings accounts like 529 plans along with creating strategies to fund education costs.

For investors with philanthropic aspirations, a financial advisor may develop plans for charitable giving that align with the investor's values and provide tax benefits. They could also assist in establishing private foundations or donor-advised funds.

A financial advisor's fee may include regular reviews and adjustments to your financial plan and investment portfolio to reflect changes in your circumstances and market conditions. It may also include detailed reporting on the performance of your investments and overall financial health.

A financial advisor's fees can vary widely based on the advisor's fee structure. The advisor can charge individually for each service or bundle them together under one fee or rate. Some fee structures include:

• Percentage of Assets Under Management (AUM): A common fee structure where the advisor charges a percentage of the total assets they manage for you, which may range from 0.5% to 2% annually.¹
• Flat Fee: A fixed fee for a specific set of services, which can be charged annually, quarterly, or monthly. These fees may range from $7,500 to $55,000.²
• Hourly Rate: Charging by the hour for financial planning and advisor services. Hourly fees may range from $120 to $300 per hour.³
• Commission-Based: Earning commissions on the financial products they sell you, such as insurance policies or mutual funds. This can sometimes lead to conflicts of interest.
• Performance-Based Fees: A less common structure where fees are tied to the performance of your investments.

Some financial advisors are fiduciaries. A fiduciary is a professional who is legally and ethically obligated to act in the best interests of their clients. This standard was set by the Investment Advisors Act of 1940. This duty is the highest standard of care and involves placing the client's interests ahead of their own. Fiduciaries must disclose any potential conflicts of interest and, whenever possible, avoid situations where their interests could conflict with those of their clients. They must also fully disclose all relevant information to their clients, such as fees and the risks and rationale behind specific recommendations.

Understanding what is included is a financial advisor's fee and the specific fee structure they use is essential to ensure you are getting the value and services you need for your financial situation.

Chicago Partners is a fee-only fiduciary advisor. If you'd like to learn more about the services we provide for our clients, we invite you to contact one of our wealth advisors. Or, if you'd like to receive a complimentary Portfolio X-Ray to review your portfolio's current asset allocation and identify gaps and weaknesses, you can contact us here.