Financial Advice Explained

Different Types Of Advisors

What is a fiduciary?

There are a few core things that you need to understand when looking at the different types of financial advisor - one of the most important being whether or not they are a fiduciary. A Fiduciary is an individual or organization legally obligated to act in the best interest of another party. For financial advisors, this means they must prioritize their clients’ financial well-being above their own potential profits.

Registered Investment Advisors (RIAs)

A Registered Investment Advisor (RIA) is a firm or individual that provides financial advice or manages investment portfolios for clients, typically in exchange for a fee. RIAs are regulated by either the Securities and Exchange Commission (SEC) or state level authorities, depending on the size of the assets that they manage. The key feature of an RIA is that they are legally required to act as a fiduciary, meaning they must always act in the best interests of their clients.

Broker Dealers

A Broker Dealer is a person or a firm in the business of buying and selling securities, either on behalf of clients (as a broker) or for their own account (as a dealer). Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA) and may also be subject to SEC oversight. Unlike RIAs, broker-dealers are generally not held to the same fiduciary standard. Instead they are held to a suitability standard, meaning they must recommend investments that are suitable for their clients based on factors like income and risk tolerance but not necessarily in the client’s best interest. They will primarily earn money from commissions or markups on the sale or purchase of investment products.

What Do Financial Advisors Do?

Investment Management

Create a personalized investment strategy to grow your wealth while managing risk, based on your goals and risk tolerance.

Financial Planning

A comprehensive approach to managing your money, aligning your income, savings, and expenses with your long-term financial goals.

Tax Planning

Optimize your tax strategy, ensuring you take advantage of tax-saving opportunities and minimize liabilities throughout the year.

Family Planning

Financially prepare for life changes like marriage, children, or supporting aging parents, ensuring your finances stay secure during these transitions.

Charity/Estate Planning

Create strategies for charitable giving and estate planning, ensuring your assets are distributed according to your wishes in a tax-efficient manner.

Big Purchase Planning

Whether it’s buying a home, car, or another major expense, plan financially so these purchases don’t disrupt your long-term goals.

Retirement Planning

Build a sustainable retirement plan, balancing savings, investments and lifestyle needs to ensure a comfortable future.

Student Loan/Debt Advice

Manage and pay off student loans or other debts more effectively, reducing interest costs and freeing up resources for other financial goals.

Business Exit Planning

Work with business owners to build a financial plan around selling their business or passing it on to a successor.

How much do financial advisors cost?

Financial advisors can be compensated in a variety of ways, depending on the services they provide and your specific financial needs. Some may charge based on the assets they manage, while others might offer fixed fees, subscriptions, or hourly rates. Understanding these compensation structures can help you find the best fit for your situation and budget.

Assets Under Management (AUM)

The advisor charges a percentage of the total value of the assets they manage for you, often using a tiered system (i.e., the more you invest, the lower the percentage charged). For example, if you had $500k invested and your advisor charges an annual fee of 1%, you might pay $5k in fees.

Financial advisors operating with an AUM model will often have a minimum level of assets that they require a client to invest with them in order to proceed, however this is not always the case.

According to Advisory HQ, 2023, the median fee’s charged using an AUM model typically fall in the range of 0.59% - 1.18% but this can vary based on the advisor and the amounts you are investing.

Flat Fee

You pay a one-time, set amount for a specific service or financial plan, regardless of the time involved. The fee may vary based on the complexity of your situation.

This option is often utilized when a client does not necessarily need to work with an advisor on an ongoing basis and just wants a one time review of their situation.

According to The Kitces Report “How Actual Financial Planners Do Financial Planning 2022” the median fee for these Flat Fee engagements is $3k but this will vary based on the advisor and the complexity of your situation.

Subscription/Retainer

You pay a regular monthly, quarterly or annual fee for ongoing financial advice and support, similar to how you would pay for a service like Netflix or your phone bill.

This option is often ideal for those seeking ongoing advice for their financial planning, tax planning investment management etc. but don’t necessarily have the levels of investible assets that some advisors would need in order to work on an AUM basis.

According to The Kitces Report “How Actual Financial Planners Do Financial Planning 2022” the median fee for these Subscription/Retainer engagements is $3k per year, but this will also vary based on the advisor, the services they are providing and the complexity of your situation.

Hourly Rate

This is similar to the Flat Fee engagement, except the advisor charges by the hour, meaning you pay for the actual time spent on consultations and/or services.

This is often utilized instead of the Flat Fee engagement when the scope of work is subject to change and provides the option for an ongoing relationship, as the client can solicit the advisor’s advice/services as and when it’s needed, paying for the time the advisor spends on them.

According to The Kitces Report “How Actual Financial Planners Do Financial Planning 2022” the median hourly rate for a financial advisor is $250, but this can vary from advisor to advisor.

Approaching The First Conversation

The first conversation with a potential financial advisor is an opportunity to get to know one another and start establishing whether this is someone you’d like to work with. Every advisor will have a slightly different approach, style and areas of expertise so it’s important to decide whether they suit what you’re looking for.

Whether it’s in that first meeting or over the course of a couple, there are some key topics that you and your advisor should discuss in order to establish whether you are a good match. Often the advisor will guide you through these conversations, but it is worth coming to the conversation prepared and with a list of questions you’d like to discuss. Download our example questions or check out some topics you could consider below.

Be prepared to share...

Establishing if they're a good fit...

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