As the founder and CEO of Select Advisors Institute, I've seen firsthand how confusing the landscape of wealth management compensation can be for high-net-worth individuals. Clients often ask, "How much does a financial advisor cost?" or "What’s the difference between an RIA and a CFP?" These are essential questions to consider when choosing the right partner to help you manage and grow your wealth.
How Much Does a Financial Advisor Cost?
The cost of hiring a financial advisor varies widely, depending on the services provided and the type of advisor you choose. Generally, financial advisors charge a percentage of the assets they manage, with the industry standard ranging from 0.5% to 2% per year. For example, a client with a $1 million portfolio might expect to pay between $5,000 and $20,000 annually. However, some advisors may charge a flat fee, hourly rate, or a combination of fees and commissions.
Wealth Management Compensation: A Deeper Dive
Wealth management compensation can differ significantly depending on the advisor's designation and affiliation. A Registered Investment Advisor (RIA) typically operates on a fiduciary basis, meaning they are legally required to act in their clients' best interests. This often means an RIA charges fees based solely on the assets under management (AUM), ensuring transparency and alignment with the client's goals.
On the other hand, wirehouse advisors—those affiliated with large brokerage firms—may receive compensation through a mix of fees and commissions. This can create potential conflicts of interest, as the advisor may be incentivized to recommend products or strategies that generate higher commissions.
RIA vs. CFP: What’s the Difference?
Another point of confusion is the distinction between an RIA and a Certified Financial Planner (CFP). An RIA, or Registered Investment Advisor, is a firm or individual registered with the SEC or state regulators to provide investment advice for a fee. An RIA operates under a fiduciary standard, providing advice that is always in the client's best interest.
A CFP, or Certified Financial Planner, is a professional designation earned by individuals who complete rigorous coursework, pass a comprehensive exam, and meet experience requirements. While many CFPs are also RIAs, the CFP designation alone does not dictate how an advisor is compensated or whether they operate under a fiduciary standard.
Fees for Financial Advisors: Finding the Right Fit
When evaluating fees for financial advisors, it's crucial to understand what you're paying for. At Select Advisors, we believe in full transparency and clear communication about fees. We often advise clients to look beyond just the cost and focus on the value they receive in return. For instance, a higher fee might be justified if the advisor provides comprehensive wealth management services, such as estate planning, tax strategies, or philanthropy management.
Wealth Manager vs. Financial Advisor: Which Do You Need?
The terms "wealth manager" and "financial advisor" are often used interchangeably, but they are not the same. A financial advisor typically focuses on investment management, while a wealth manager offers a more holistic approach, addressing all aspects of a client's financial life, from investments to retirement planning, estate planning, and beyond.
For high-net-worth clients, the distinction is significant. A wealth manager takes a broader view, coordinating with other professionals, such as CPAs, attorneys, and tax advisors, to create a comprehensive strategy tailored to the client's unique needs.
RIA vs. Wirehouse: Choosing the Right Partner
When it comes to selecting a financial advisor, clients often face a choice between an RIA and a wirehouse advisor. While both can provide valuable services, RIAs tend to offer a more client-centered approach. They are independent and typically offer a wider range of investment options, as they are not tied to a specific firm’s product lineup.
In contrast, wirehouse advisors may have access to proprietary products and services, but their compensation structure might include commissions or incentives tied to those products. At Select Advisors, we often find that our clients appreciate the independence and objectivity that RIAs can provide, allowing for more tailored and unbiased advice.
High Net Worth Wealth Managers: The Right Choice for You
Ultimately, choosing the right advisor comes down to understanding your personal needs and preferences. For high-net-worth individuals, partnering with a wealth manager who provides comprehensive services, operates with transparency, and has a fiduciary duty can make all the difference in achieving financial goals.
At Select Advisors, we take pride in guiding our clients through these complex decisions, ensuring they have access to the best possible advisors for their unique circumstances. As someone who has worked with numerous high-net-worth clients, I know that finding the right advisor is not just about fees; it’s about finding a partner who aligns with your values, understands your goals, and is committed to your long-term success.
Amy Parvaneh, founder and CEO of Select Advisors
Consultant to 1,000 wealth management firms and teams
I've dedicated the majority of my career to the wealth management industry, and it's a sector I'm deeply passionate about. My journey began in investment banking at Citigroup, just a week before the tragic events of 9/11. It was a challenging time for our country and the financial sector. We spent that first year working late shifts despite the lack of deal flow. The hours were long, the pressure intense, and the work uninspiring. Most of my class faced layoffs that year.
Rather than changing course, I woke up at 4 a.m. daily to find another job, navigating a very tough job market. This persistence led me to equity research, where I found a "cushiony," low-stress job involving a lot of data entry and research. It wasn't for me, but I learned a lot. After business school, I knew I wanted to stay in finance, but roles in private equity, equity research, and corporate finance didn't excite me. That's when I discovered wealth management, an industry that wasn't heavily pursued. I joined Goldman Sachs, and the rest was history.
Read more of my bio here, and read below what I’ve gathered about the going rates of various financial advisors.
Need to hire a financial advisor but don’t know where to start?
Before deciding if a financial advisor is worth the cost, take a step back and assess your current financial situation, goals, and needs. Determine if you need assistance with retirement planning, investment management, tax planning, estate planning, budgeting, or a combination of these areas. Understanding your specific financial needs will help you determine the value a financial advisor could bring to your situation.
Reach out so I can help you source the best partner.
Discover critical factors in evaluating a financial advisor's value, such as fee structures, compensation models, and fiduciary responsibility. Learn to differentiate between fee-only and fee-based advisors, and consider cost-effective options like robo-advisors. Whether navigating complex financial decisions or seeking specialized expertise, this guide empowers you to make informed choices about hiring a financial advisor. Find the right advisor to guide your financial journey effectively and align with your unique financial goals.