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How much does a financial advisor cost?

Item 5E lists the fee method. The brochure lists the price. A 1% quote on $500,000 is $5,000 a year. Your rate may differ. Convert it to dollars.

The short answer

There is no single price. Form ADV Item 5E lists the ways a firm says it gets paid: a percent of assets, hourly charges, subscription fees, fixed fees, commissions, performance fees, and other deals.

The checkbox is not your bill. The brochure (Part 2A) and the agreement are. Take the rate they offer you and turn it into dollars. A 1% rate on $250,000 is $2,500 a year. On $500,000 it is $5,000. On $1,000,000 it is $10,000. Your brochure may use another rate, and the rate may fall when the balance is higher. These lines are the math of a 1% quote. They are not averages.

Method on Item 5EWhat you are looking atWhere the price is
5E(1) percent of assetsA rate times the account, billed again each yearBrochure schedule
5E(2) hourlyA rate times hoursThe letter that sets the job. Ask for a cap.
5E(3) subscription feesOn the form, this is the newsletter categoryBrochure. A monthly planning retainer is often 5E(4) instead.
5E(4) fixed feesA set dollar amount for a plan, a month, or a yearBrochure or the job letter
5E(5) commissionsPay tied to a sale or a productBrochure conflict pages, the prospectus, and BrokerCheck if a broker is involved
5E(6) performance-basedExtra pay if the account clears a hurdleBrochure. Not every client can be charged this way.
5E(7) otherAnything the boxes above missBrochure. Do not skip this Yes.

What to do

  1. Open Search and open the firm page before the meeting.
  2. Write every Item 5E Yes. A firm with three Yes boxes uses three methods. You still need to know which one applies to your account.
  3. Open the fee section of the brochure and Form CRS. Copy the rate, the points where it drops, whether they bill at the start of the period or after it, and whether the fee comes out of the account. If the PDF is missing here, download it from IAPD for the same CRD. The CRD is the firm's ID number.
  4. Put that rate into the advisor fee calculator. If one quote is a commission and the other is a yearly advice fee, use commission vs advisory fee so you are not comparing a sales load to a percent by eye.
  5. Add the costs Item 5E does not list one by one. Fund expense ratios sit on top of the advice fee. A wrap program under Item 5I still needs its own dollar figure. A wrap is one fee that is supposed to cover advice and trades.
  6. Email this and wait for numbers: "On my balance of $____, what is the advice fee in dollars for the next 12 months? What is not included? Do you bill at the start of the quarter? If I leave in the middle, what is refunded?" File the reply with the agreement. More questions are in questions before hiring.

What to look for on Best Investors

  • Yes or No rows, not prices. Item 5E never shows your percent or your retainer. People misread a Yes on 5E(1) as "this firm charges 1%." It means the firm reports some asset-based fee, for some clients.
  • More than one Yes. That is normal for a firm that writes plans for a set fee and manages money for a percent. The agreement should assign each fee to a service.
  • Item 5I. Open it when the firm talks about "one fee that covers everything." Confirm the number and what trading is inside it.
  • AUM on the profile. Reported firm assets. Not your fee and not a minimum. Minimums, when they exist, are in the brochure.

Common mistakes

  • Repeating a percent and never multiplying it by the account you have.
  • Comparing a percent at one firm to a commission at another without putting both in dollars.
  • Forgetting the expense ratio. Two advice fees can match while the funds underneath do not.
  • Ignoring a fee billed at the start of the quarter. Ask what is refunded if you leave in the middle.
  • Treating a stated account minimum as the law. There is no legal minimum. Each firm sets its own. Hourly and fixed-fee firms may take work an AUM firm turns down.
  • Calling Item 5E(3) a monthly planning plan. On the form, 5E(3) is the newsletter category. A retainer is often 5E(4). Read the brochure.

Related questions

Why do I keep hearing 1%?

It is a round number firms say out loud. Form ADV does not publish it as a standard rate. Some schedules start near there and fall on larger balances. Some do not. Use the rate in the brochure for your balance.

Is the cheaper quote the better hire?

Only after the work matches. A lower percent can be the same portfolio for less money. It can also drop the plan or the meeting you wanted. Match Item 5G to the job, then compare dollars. Is a financial advisor worth it? is the scope test.

What is a performance fee in a normal household account?

Item 5E(6) means extra pay if results clear a hurdle. The brochure states the hurdle and who may pay it. If that fee is in your draft, read the formula before you sign.

Does fee-only tell me the price?

No. Fee-only is about whether product commissions are in the model. The fee you pay can still be a percent, a flat amount, or an hourly rate. See fee-only vs fee-based.

Limits

This page does not quote a live fee for any firm. It is not legal or investment advice, and Best Investors is not the SEC.

The firm filled out Item 5E. Those categories are not a fee schedule, and we do not audit them. The dollar examples are the math of a 1% rate. They are not averages.

If the brochure here disagrees with IAPD, use IAPD.

Sources

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