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Can You Afford a Financial Planner?

The cost depends on how complicated your situation is — and how much money you have

Financial advisor explaining paperwork to elderly retired couple front of desk
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Every once in a while, such as when you receive a subpoena or need to write a will, you will decide you need expert advice — in these cases, from a lawyer. You need that expert advice because you’re not an expert in law.

Similarly, you may turn to an expert if you have a major financial decision to make, such as when to retire or how much life insurance you need. And in many of those cases, you will probably decide you need a professional financial planner. One of the big decisions: Can you afford one?  

It’s a good question, and a difficult one to answer — because the cost of a planner depends not just on your individual situation, but also on how the planner gets paid. It’s not unusual for some planners to require assets of $1 million or more before they will see you. And your case may be more expensive because your life has complications, such as a small business to sell or 12 children from four spouses. 

Nevertheless, it’s possible to get a financial planner who suits your needs and your savings. “I believe that anyone who is seeking competent and ethical financial advice has the opportunity to find it, if they know where to look,” says James Lee, a certified financial planner in Saratoga Springs, New York, and president-elect of the Financial Planning Association’s board of directors.

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Start with the basics

Before you start talking money with a money manager, you need to know what his credentials are, how long he has been in business, and whether he has any criminal or disciplinary history. And fortunately, AARP has a concise checklist of what to look for in a financial adviser and what to avoid. Try AARP Interview an Advisor for free help with understanding the adviser’s credentials, compensation and how to get the conversation started.

The short version: Choose an adviser who is a “fiduciary,” which means she is required to put your interests before hers. If she has a choice of two similar mutual funds, for example, she would be obliged to choose the one with the lowest overall costs to you. Also:

  • Check the adviser’s credentials. Registered investment advisers are required to be fiduciaries. Certified financial planners may be fiduciaries, but they don’t have to be. You can get a rundown on the myriad financial planning designations from the Financial Industry Regulatory Authority (FINRA), the investment industry’s self-regulation organization.
  • Check for any disciplinary actions against your adviser. The U.S. Securities and Exchange Commission, your state securities regulators and FINRA provide free reports on the disciplinary history of financial advisers.
  • Check for the services a planner offers. Some offer tax services, estate planning and insurance as well as overall financial planning. Try to get one who offers all you need.
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What will it cost?

A financial plan can be a time-consuming piece of work. It requires the planner to interview you and find out what your assets and savings are, and what your goals are. The planner then must figure out a plan for reaching those goals. For many people, the only goal may be determining when they can retire. For others, it could be figuring out who gets the Maserati and who gets the Kia Soul when you die.

In addition to creating a plan, planners will typically want to find a way to implement it: recommending investments for your savings, for example, or figuring out how to lower your debt payments. They may also require annual meetings to see how the plan is working out, and whether it will need any changes.

The more time-consuming the plan, the more money your adviser is going to charge. Some planners serve only wealthy clients. In part, this is because those planners base their fees on a percentage of a client’s assets — typically, 0.25 percent to 1 percent per year. Typically, the more you bring to the table — a figure known in the business as assets under management (AUM) — the lower the fees.

For some planners who charge a percentage of assets under management, small accounts just aren’t worth the time. A planner who charges 1 percent of assets probably won’t want to manage a $100,000 nest egg: It would generate only $1,000 a year in income for the planner.

But don’t give up. The financial services industry has figured out a number of lower-cost options for people, starting with robo-advisers, which are computer programs that will look at your data and disgorge basic advice, such as how much you should be saving, what debt you should repay first, how to start an emergency fund, and when you might be able to purchase a home.

  • Betterment, for example, will help you plan for retirement and other goals and pick a portfolio that best suits your tolerance for risk. It has no minimum balance requirement and charges 0.25 percent of assets annually. You can also get a premium membership, which offers live advisers.
  • Wealthfront charges 0.25 percent of assets a year and requires a $500 minimum. It can help you save for college as well as retirement.
  • Vanguard, the mutual fund behemoth, also offers a robo-adviser service. It charges 0.2 percent a year and invests in low-cost Vanguard funds. You’ll need $3,000 to start.

Robo-advice is not for everyone. If you want a more personal approach, planners are now looking at alternative methods of payment. “There are different compensation methods that financial planners are now using that allow them to serve clients who were traditionally underserved by the financial services industry,” Lee says.

One alternative: Look for planners who charge an hourly fee to create a plan and let you implement it. Like lawyers, planners aren’t cheap: Expect to pay $200 to $400 an hour. Again, the more complex the situation (and the more experienced the planner), the more you’re going to pay.

Another option is to simply pay a flat fee for a plan. The average cost for a standalone financial plan is about $2,500, Lee says. Be aware that some companies that charge an ongoing fee for managing your money may charge separately for the plan. If you feel reasonably competent to make the recommendations in your plan, just getting a plan — or a portfolio checkup — might be the best way to go.  

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AARP Membership — $12 for your first year when you sign up for Automatic Renewal

Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.

membership-card-w-shadow-192x134

AARP Membership — $12 for your first year when you sign up for Automatic Renewal

Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.