As fee only financial advisors one of the most common queries we receive from the web has to do with how much a financial plan costs. It’s a good question as there are a number of ways you can pay for a plan, from fee-only to commission only. Fee only typically costs a good bit more up front, while commission based may be much less expensive or even free initially, but ultimately end up costing more. So how do you know what you’ll be paying?
The first step is to understand the costs involved. Typically, you can break those costs down into two categories:
- The cost for the plan
- The cost for the investments
The cost for the plan should be identified up front. Many advisors – ourselves included – work on an hourly rate, but if you can provide an accurate outline of what you need, the advisor should be able to provide an estimate of the time required, and thus the cost. Some of the larger brokerage houses may provide an abbreviated plan for a flat rate, and subsidize that rate with commissions from investments – more on that in our next post.
When comparing plan costs, make sure you understand what each plan entails so that you know you’re comparing apples-to-apples. The abbreviated plan may be a simple point A to point B plan showing how to achieve a single financial goal – most often retirement – while a comprehensive plan will look at a number of financial issues. Obviously, the latter requires more work and it will likely cost more. Whether or not you need a comprehensive plan is something you should discuss with the planner, although we believe at some point everyone should have a head-to-toe financial review.
So to the bottom line – what should you expect to pay for the planning portion of a plan? For simple goal-based plans, we’ve seen brokerages provide them for a few hundred dollars or even for no cost. Of course, in implementing the plan, the brokerages would sell you commissionable investment products. As for fee only planners such as ourselves, hourly rates cover a wide range, and the rates we’ve encountered range from $150 per hour to nearly $300. If your situation is fairly straightforward and you don’t need much investment advice, plan on paying somewhere over $1,000 for your plan. We’ll be adding plans to our sample plan page, and that will provides some insight into the cost of a plan for people in a variety of situations from simple to complex.
In our next post, we’ll take a look at how to estimate the cost of the investment portion to a plan.