How much will it cost?
A financial plan can be a time consuming job. This requires the planner to interview you and find out what your assets and savings are, and what your goals are. The planner must then develop a plan to achieve these goals. For many people, the only goal may be determining when they can retire. For others, it might be figuring out who gets the Maserati and who gets the Kia Soul when you die.
In addition to creating a plan, planners will usually want to find a way to implement it: recommend investments for your savings, for example, or find a way to reduce your debt repayments. They may also require annual meetings to see how the plan is working and if it needs to be changed.
The longer the plan takes, the more money your advisor will charge. Some planners only serve wealthy clients. This is partly because these planners base their fees on a percentage of a client’s assets, typically 0.25% to 1% per year. Generally, the more you bring to the table – a figure known in the industry as assets under management (AUM) – the lower the fee.
For some planners who charge a percentage of assets under management, small accounts just aren’t worth it. A planner who charges 1% of assets probably wouldn’t want to manage a nest egg of $100,000: that would only generate $1,000 in revenue per year for the planner.
But don’t give up. The financial services industry has found a number of lower-cost options for people, starting with robo-advisors, which are computer programs that will look at your data and give basic advice, such as how much you should save, what debt you need to pay off first, how to start an emergency fund and when you might be able to buy a house.
- Improving, for example, will help you plan for retirement and other goals and choose a portfolio that best matches your risk tolerance. It has no minimum balance requirement and charges 0.25% of assets per year. You can also get a premium subscription, which offers live advisors.
- Wealthfront charges 0.25% of assets per year and requires a minimum of $500. It can help you save for college as well as for retirement.
- Mutual fund giant Vanguard also offers a robo-advisor service. It charges 0.2% per annum and invests in low-cost Vanguard funds. You will need $3,000 to start.
Robotic boards are not for everyone. If you want a more personal approach, planners are now exploring alternative payment methods. “There are different methods of compensation that financial planners are now using that allow them to serve clients that have traditionally been underserved by the financial services industry,” says Lee.
An alternative: Look for planners that charge an hourly fee to create a plan and let you implement it. Like lawyers, planners aren’t cheap: expect to pay between $200 and $400 an hour. Again, the more complex the situation (and the more experienced the planner), the more you will pay.
Another option is to simply pay a flat fee for a plan. The average cost for a standalone financial plan is around $2,500, Lee says. Be aware that some companies that charge ongoing fees for managing your money may charge the plan separately. If you feel reasonably competent to make your plan’s recommendations, simply getting a plan — or a portfolio checkup — might be the best course of action.