Developing a retirement investment portfolio is an important step to ensuring your financial security during your golden years. Before investing, understanding your risk profile and investment objectives will ensure you make prudent investment decisions. A financial advisor will help you build an investment portfolio that matches your investor profile.
Fortunately, financial planners offer a variety of fee structures so you can choose the fee plan that works best for you.
Understanding Financial Advisor Fees
A financial planner helps clients assess their investment risk profile, choose the best asset allocation (e.g., stocks, ETFs, bonds, cash), and periodically rebalance a portfolio. In exchange for this financial guidance, your financial advisor will charge fees.
The type of fee structure can make the difference between paying 1 percent or 10 percent in fees on your investment assets. The commonly used fee structures are:
- a flat fee, which may be charged hourly, monthly, or annually
- commission on financial products and services sold
- a percent of assets under management
- a mix of the above fee structures
Fee-Only vs Fee-Based Financial Planning
If a financial advisor only charges a flat fee, it is called a fee-only structure. With a flat fee, you know exactly how much you will be charged upfront. A fee-only advisor does not receive commissions for selling specific financial products.
A fee-based financial planning advisor earns commissions on the products they sell you. These may be proprietary products of their company or products of other financial services providers. For example, they may sell you mutual funds and ETFs from fund houses and, in exchange, receive a commission from the fund house.
Before deciding on the fee structure that is best for you, ask the financial advisor if they are a registered investment advisor (RIA). No matter what fee structure an RIA uses, they have a fiduciary duty under the law to always act in your best interest. In other words, they must sell you the products that best meet your risk profile and financial objectives.
Always ask what financial services are offered. An online broker, for example, may charge a flat fee but only offer financial advice by phone from a pool of financial advisors, whereas a full-service financial advisor will be available upon request to meet in person when you seek financial advice or an update on your portfolio.
To learn more, contact a resource that offers fee-based financial planning services.