Broker Check

What is the True Cost of a Financial Planner?

December 15, 2021

Most financial planners either charge an hourly fee for their services, or charge a percentage fee of the assets they manage, typically ranging from 1-2%.

But what value do you get in return?

Industry studies estimate that financial advice can add between 1.5% and 4% to portfolio growth over extended periods of time.1

However, while the statistics may indicate that working with a financial planner can be beneficial in both the short- and long-terms, they do not explain the other intangible ways your financial planner adds value to your portfolio. To understand how a financial planner can successfully add value, you need to have an understanding of what it is planners actually do.

A qualified financial planner can create a comprehensive plan that addresses all aspects of your financial life, and includes multiple strategies to help you define and achieve your goals.  Not only will they advise you about your investment choices at various stages of your life, they will support you through emotional times that may negatively influence your financial decisions or circumstances.  They can address complex tax issues, advise on the proper amounts of insurance coverages to protect your family, and ensure your estate planning is set up properly so your wealth winds up where you want it to.  A financial planner can help you realize your retirement goals and achieve all of the other interim financial goals you want to accomplish between now and the time you leave the workforce.  In short, they should help you make smart decisions with your money.

For most investors who choose to work with a financial planner, advice is not just about investments.  By providing you with a guideline to follow, working with a financial planner can help you feel confident about your current and future financial situation and allow you to focus more time on the things in life that are most important to you.   

Value of advice sources: Envestnet, Capital Sigma, The Advisor Advantage (PDF)Opens in a new windowestimates advisor value add at an average of 3% per year), 2019; Russell Investments 2019 Value of a Financial Advisor UpdateOpens in a new windowestimates value add at more than 4% per year); and Vanguard, Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha®Opens in a new window 2019, (estimates lifetime value add at an average of 3%). The methodologies for these studies vary greatly. In the Envestnet and Russell studies, the paper sought to identify the absolute value of a set of services, while the Vanguard study compared expected impact of advisor practices to a hypothetical base case scenario. Please follow the links above to see important differences in the methodologies of these various studies.