An Inside View of Financial Planning Fees

I’ve worked in the financial services industry since 1997.  I worked for two brokerage firms and an independent investment advisory firm before opening Clarus in 2005.  Over these many years, I’ve met hundreds of advisors and seen nearly as many pricing models.  It’s no wonder there is confusion as to what financial advisory services cost, so I will sum it up:  too much!

Many brokerage firms, banks, and some investment advisory firms charge commissions. If you have a friend who believes they don’t pay for their investments, they’re likely working with this type of pricing model. They likely paid 3-5% on their initial investments and have ongoing fees of .75 – 1%, but they didn’t write a check (hence their belief that it’s free) – the fees came from investment performance. A $1 million portfolio cost them $30,000 – $50,000 initially, and $7,500 – $10,000 annually. In addition to the investment advice, they may also receive retirement planning advice, at no additional charge.

Most investment advisory firms charge an annual percentage fee based on the amount of assets they manage. Typically, this fee is 1% for the $1 million portfolio ($10,000/year).   I’ve seen some banks and brokerage firms charge up to 2.5% per $1million invested ($25,000/year).  Internal investment costs may bump the total fees up by an additional 0.1 – 1% per year. Read more