When you hire a professional for financial planning, here's the deal: You get a bill that reflects their time and expertise — and that's that. But it's not always that simple.
Lawyers may charge by the hour (or six- or 15-minute increments). Doctors often charge by the visit, but insurers might cover some or all of the cost. Tax preparers charge based on the complexity of your return and the number of forms they file on your behalf.
Financial advisors, though, get paid in myriad ways. Independent financial planners may charge an upfront flat fee, an hourly rate or a monthly or annual retainer that automatically renews.
If you want the advisor to manage your investment portfolio as well as provide comprehensive financial planning, you will pay a percentage of your asset size — an AUM (assets under management) fee that generally hovers around 1%. The more money you have to invest, the more likely you can lower your AUM fee.
How To Save On Financial Planning Fees
As they near retirement, smart savers do not accept fees at face value. They seek ways to eliminate or reduce fees — by adopting DIY strategies or finding alternative providers with different business models.
Pre-retirees need to pay extra attention to fees. Overpaying an advisor year after year for fee-heavy services or investment products can chip away at your retirement assets.
Consider what you need an advisor to do — and not do — to help you. Financial planners offer a range of services depending on each client's situation. It's up to you to pick and choose what you want to pay for.
Read More In Our IBD 2024 Retirement Special Report. Plus, Find New Ways To Boost Retirement Income, And See Cures For Retirees' 5 Biggest Health Care Fears.
"Ask yourself if you really need everything the advisor offers," said Sara Grillo, a New York City-based marketing consultant. "For example, can you make the trades yourself? Can you manage the money yourself, if the advisor provides an initial investment allocation and rebalancing instructions?"
If you're willing to tackle these tasks on your own, you'll save a bundle by hiring an advice-only planner. Confirm that the advisor is a fiduciary who must act in your best interests, offers transparent pricing (usually a flat or per-project fee with no product sales or commissions), and provides guidance without taking custody of your assets.
It Pays To Get Pro Advice Early On
Mid- or late-career professionals who've never hired an advisor may benefit from more intensive advice at first. They can obtain a customized financial plan that includes retirement planning, estate and tax planning, and an overview of insurance needs and investment issues.
"You may be better off paying a higher amount in the beginning of the relationship," Grillo said. "After the initial 'cleanup' is done, you may only need minimal maintenance work" that you can do yourself.
Once you pay this one-time bill — which may run $1,200 to $3,000 for a tailored financial plan — weigh your next steps. Some advisors might suggest that you pay them a monthly, quarterly or annual retainer that renews in perpetuity, cementing an ongoing relationship.
While such regular payments can make sense if you require frequent calls and consultation about your finances (along with an advisor's hand-holding during volatile market swings), you can skip such fees if you're equipped to handle it from here. For example, after an advisor sets the proper asset allocation based on your age, risk tolerance and other factors, you can periodically rebalance your portfolio on your own.
Working With Virtual, Remote Retirement Advisors
The growth of virtual advisors creates another money-saving opportunity. These are financial planners who work with clients from long distances and rely on videoconferencing. Remote advisors, especially those who run a virtual-only practice, might charge lower fees because they save on the fixed costs that their office-based competitors incur.
Whether you hire an advisor from afar or in your neighborhood, consider paying an hourly rate if you need help confronting a complicated or high-stakes financial decision. For example, new retirees may want to calculate the best time to take Social Security benefits or develop a plan for taking required minimum distributions from their retirement accounts.
Even DIY-type retirees may need a financial planner to navigate specific financial challenges. They can contain the cost of an advisor's expertise by limiting the scope of the engagement.
"They might pay $400 an hour for five hours of an advisor's time to make sure they're on track," said Evan Beach, a certified financial planner in Alexandria, Va. "It can be hard for them to solve bigger problems on their own like selling a business or managing distributions to minimize taxes, so paying hourly" to address those needs can make sense.
More: Learn About The Best Time To Claim Social Security Plus, Read What Empower CEO Ed Murphy Says About Using AI For Retirement Planning.
It's OK To Talk About Financial Planning Fees
Just as you can negotiate a car purchase, it's fine to haggle over advisor fees. But you're in a stronger position if you focus on getting sufficient value versus simply trying to pay less.
"If you have an advisor that you like and trust who's charging you $8,000 a year, it's easy to tell a second advisor that you're not going to hire them unless they can match or beat that rate, or offer you some additional needed service," said James Dahle, an emergency physician and founder of the White Coat Investor, a personal finance website for physicians. But he adds that high-quality wealth management is expensive and you're better off seeking good advice at a fair price.
It's also easy to get carried away with negotiating. You may settle on a discounted rate with an advisor, only to find the service underwhelming.
The Right Retirement Advisor Fit Always Pays Off
"Don't negotiate when you have a bad fit," said Preston Cherry, a certified financial planner in Green Bay, Wis. "It's better to find the right fit and then make sure you understand and are comfortable with what you're paying for. You can pay less for something and not get what you want."
While negotiating an advisor's fee has its limits, it's even harder to negotiate with tax preparers. In many parts of the U.S., there's a shortage of tax preparers. They rarely cut their fees to gain financial planning business.
Instead, seek out free tax-prep programs such as the AARP Foundation Tax-Aide. Every tax season, it mobilizes volunteers nationwide who are IRS-certified to help people complete their federal tax returns.
The program focuses on people over age 50 with low to moderate income, but others can benefit as well. You don't need to be an AARP member to participate. In early February 2025, find the nearest Tax-Aide location to see if you're eligible.
