Understanding Investment Advisor Fees - The cost of expert financial advice

Did you know that working with an Investment advisor can be cheaper than your daily cup of coffee? When most people think about Investment advisors, they imagine high fees and millions of dollars in investment minimums just to speak to one. While that may have been true in the past, today’s reality shows that the financial industry has changed drastically, to the point where even everyday investors have access to expert financial advice.

Financial literacy is more accessible than ever. Investment advisors are available to fit every budget and your current financial level, even if you’re just getting started.

Understanding the different kinds of fee structures that Investment advisors charge will help pair you with the best expert for your budget. We’ll break down the most common types and show why Paycheck to Wealth is the popular choice for everyday investors like you!

What does an Investment advisor do?

Investment advisors are experts helping clients navigate their financial journey. Whether saving for retirement or building generational wealth for your kids, everyone has different financial goals that can be achieved with the guidance of an advisor.

Their main roles include:

·       Determining your risk tolerance

·       Understanding your personal financial goals

·       Portfolio allocation

·       Financial planning

Clients pay Investment advisors to manage these tasks on their behalf. If you’re wondering how much does an Investment advisor cost? It depends on a few other factors. And it doesn’t always correlate with their ability to help you build wealth. That’s how clients can differentiate between an effective Investment advisor and someone who costs more than the benefit they deliver.

The different types of Investment advisor fee models

Investment advisor fee models refer to all the different ways they charge clients for their services. There are four different fee models:

1.      Assets under management model

2.      Subscription model

3.      Retainer model

Here’s a breakdown of what each one actually costs to help you decide which is best for your financial goals.

Assets under management model

Recommended for: high net worth investors

The assets under management (AUM) model is one of the most common fee models. Financial investors charge a percentage of the amount a client has invested as the annual fee. The industry standard is 1%, but it can vary depending on the types of services the advisor offers.

The 1% fee may seem small, but it can add up quickly depending on how much you have invested. Someone with $100,000 invested will be charged $1,000 per year in advisor fees. A $1,000,000 investment will incur $10,000 in annual charges.

The advantage to the AUM model is that the Investment advisor typically handles all aspects of allocating your money into different funds and investments. It’s a passive approach based on trusting the experts. One of the biggest critiques about the AUM model is that the service isn’t much different whether you have $100k or $1M invested. However, the percentage-based fee means that you’ll pay more every year as your portfolio grows. The fee is typically paid out of your investments, meaning less money compounding.

Many Investment advisors with this fee model require a minimum account balance, which can start at $250,000.

Subscription model

Recommended for: First-time investors, career professionals

Investment advisors charging a monthly fee are categorized as having a subscription fee model. Many people are used to paying subscriptions, such as Netflix or Spotify, so it’s easy for them to get started.

Subscription fee models can vary in price depending on the services offered. Investment advisors with these fees typically don’t manage any assets. Instead, they provide recommendations on which investments to make, and financial planning based on your risk tolerance and goals. The client still has an active role in managing their own financial portfolio.

This fee model is great for beginners, as it offers a low-cost way to get financial advice, even if they have little to no investment experience.

Retainer fee model

Recommend for: High-income earners

The retainer fee model has elements of both AUM and subscription fee models. Clients pay a monthly fee for the Investment advisor’s services, which typically include managing their investments. According to NerdWallet, the average retainer fee can be anywhere from $2500 to nearly $10,000 per month!

It’s recommended for high-income earners who can support the high monthly costs but do not meet the minimum account balances required for the AUM model.

The Paycheck to Wealth Difference

Paycheck to Wealth has a subscription-based fee model for our Investment advisor services. We work with first-time and everyday investors, so this model helps keep fees low, giving you more money to put towards your investments.

Other Investment advisor models are too expensive for early investors. Most can’t meet the minimum account balances required by AUM models, and the high monthly costs of the retainer model are out of reach for the average paycheck. With the subscription model, our clients can still get access to expert financial advice. You can speak with an advisor to develop your financial roadmap and get recommendations relevant to your investment level.

Investors have access to a Investment advisor for as low as $3 per month, regardless of whether you have $100,000 invested or $10 invested.

Review our services to see which plan works best for you to help achieve your financial goals!