SMSF
Gareth Lane
Updated Dec 19, 2022
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This information has been reviewed by our SMSF Mates before it was published as part of our review process.
When it comes to paying for a financial advisor, the costs are usually based on assets under management (AUM) or in simple terms – how much money they manage for you. The fees are in the vicinity of 0.20% to 1.5% of AUM per year. Some financial advisors charge a fee for service or annual fee instead. When we talk about a fee for service model, engaging a financial advisor to prepare a Statement of Advice (SOA) might cost between $1,000 and $2,000 to give you an idea. Ongoing annual review fees are ‘as long as a piece of string’ depending on how complex the work is. If you want to know what you will be paying ahead of time, the fee for service model is very similar to the models used by accountants.
Exactly how much you end up paying for your financial advisor boils down to the fee structure they use. Financial advisors who charge a fee as a percentage of the client’s balance (0.20% – 1.5%) will vary depending on the balance of the account. Those who charge a fee for service can cost anything between $1,000 – $10,000 per year depending on how much work they do for you. Each fee structure has its merit, so it pays to consider which one works best for you before engaging a financial advisor.
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Most financial advisors today will charge a fee based on how much money they manage for you (AUM), and some financial advisors charge a fee for service. In the table below, you can estimate the annual cost of a financial planner based on each fee type.
AUM (assets under management) 0.20% – 1.5% annually for a traditional advisor on the balance of the portfolio
Fee for service $1,000 – $10,000
Hourly fee $100 – $300
Per-advice fee $1,000 – $3,000
Digital or online financial advisors operate online only and usually offer full-service financial advice and wealth management services. Unlike a traditional financial advisor who you will often meet face to face, an online financial advisor will meet you via video call, which might be more convenient compared to travelling to the city.
On average, an online financial planner will cost less than a traditional financial advisor making it a competitive choice. Some online financial planners offer computer-automated investments and access to a team of financial advisors for further advice or guidance if needed.
Some even go as far as offering a qualified financial planner to each client who works with you to create a complete financial plan and investment portfolio.
This is what comes to mind when looking for a financial advisor – a local company, where you go to meet with your financial advisor in person. Traditional financial advisors use many different fee structures which we have covered off below:
Many online planning services use the AUM fee structure, and it can be very cost-effective for people with lower balances in their investment portfolio. For this reason, some traditional financial advisors won’t take on clients with a balance of less than $200,000, which is another consideration.
A monthly retainer is a recurring monthly fee, and the cost usually isn’t linked to how much you have in your portfolio, but usually, you will pay more with complex requirements.
You only pay for the time you need with this fee structure, which doesn’t change based on how much you have to invest.
There is no ongoing management with the fee for service model; instead, you only pay for what you use, and you carry out the plan yourself.
An example calculator
Regardless of the type of financial planning you require, it’s essential to understand how much you’re up for with financial advisory services and what you are getting for your money. This is especially relevant to a traditional financial advisor because there are many different fee structures offered.
Due to the wide variety of fee structures used by financial advisors, unfortunately, there is no typical fee that financial advisors charge. This is largely because of the range of services advisors offer to their clients and the varying degrees of complexity; it can be challenging to know how much you should pay.
If you’re only looking for very basic investment management and have a relatively small account, a flat fee will likely be too expensive. On the other hand, if you have your life savings to manage, working with a cost-effective financial advisor might mean you won’t receive the level of service you need. The good news is, there are plenty of options to choose from.
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