Before telling you the exact salaries of a financial advisor, let us take a look at the factors which govern their salaries. There are primarily two factors governing the salary of a financial advisor.
– There is no single degree or certification required to become a financial advisor, but having a bachelor’s is a must. Interested individuals can pursue a bachelor’s degree in business, law, mathematics, economics, accounting, or finance. Financial advisors can remain generalists or they can specialize in certain areas like retirement, taxes, estate planning, or insurances.
There are numerous certifications and licenses available for a financial advisor. These certifications generally require specialized training, an exam, and continuing education.
NAPFA ( National association of personal financial advisors) recommends at least one certification from the following.
- Certified Financial Planner (CFP)
- Personal Financial Specialist (PFS)
- Chartered Financial Consultant (CHFC)
- Chartered Financial Analyst (CFA)
Apart from these certifications, some special areas require licensing. For instance, advisors who want to specialize in insurances have to register themselves as Registered Investment advisors with their state or SEC ( Securities and Exchange Commission).
– Financial advisors require immense experience in their field, students pursuing financial advisor as a carrier need to attend a school which has relations with a financial firm or a company. From there, students can practice the skills they have learned, and gain experience in the field. The more working experience a financial advisor has, the more his salary is likely to be.
Now without further ado, let us take a look at the salary of a financial advisor.
According to a report by U.S. news in 2018, financial advisors made a median salary of $88,890 per annum.
The best-paid 25 percent of financial advisors made an astonishing $157,710 per year whereas the lowest-paid 25 percent made $57,290 per year.
In the same U.S. news report, the job of a financial advisor received an overall score of 6.8/ 10.
What does a Financial advisor do?
Simply put, a financial advisor is someone whose job is to help clients create a financial plan and achieve their financial goals.
When most people hear the term “Financial Advisor”, they often picture a professional giving advice on the stock market. Even though a financial advisor does so, this is not the only aspect he deals with.
A financial advisor assists his or her clients in all kinds of financial goals. His or her responsibility is to create a financial plan according to clients’ desires and goals. This financial plan is created in a manner to minimize the risk and maximize returns.
When you approach a financial advisor, the first step will be that you will be given a questionnaire. This questionnaire will help the financial advisor determine clients’ goals and risk tolerance capabilities. This is done so because some clients can tolerate more risk if there is a prospect of higher returns whereas some clients wish minimum risk even if there is a prospect of lesser returns.
Now, let us take a look at the exact tasks managed by a financial advisor.
When most people make the mind of investing, they start researching and get bogged down with the information. This is where you can seek help from a financial advisor. Financial advisors possess deep knowledge of investing opportunities. Each client is different and therefore before giving them any advice, they assess a client’s desires and risk tolerance capabilities.
After assessing the client, the financial advisor makes a suitable portfolio of investments, these investments can be mutual funds, real estate, precious metals, or even foreign currency.
The job of a financial advisor does not end here, they monitor your investments regularly and provide you details. These details include: how your investment is working out, are there any changes required, or are your investments at any risk.
2) Debt Counselors
It is never recommended to invest your money when you have a big debt to pay. If the debt is not tackled with a smart plan, it can grow disastrous and sometimes, can even turn into a debt trap.
Although you can get rid of your debt yourself, a financial advisor, particularly a debt counselor can help you to do so. They often help clients who are overwhelmed by the debt due to their financial instability. Whether clients need minor help, or they need extensive help in managing their debt, a debt counselor can be of help in both.
Debt counselors give clients a roadmap to walk on to get rid of the debt and in some extreme cases even an escape plan. An Escape plan is generally selling your assets to get rid of the debt quickly. Once they help their clients get rid of debt, they also help clients recover and attain
financial stability again. So, clients can start shifting their focus on the future rather than on past expenses.
3) Retirement Plans
Do you have a dream of doing a world tour? Or you want to do some social work? Whatever you wish to do after your retirement, you are required to be in a good financial condition.
On average, a person retires at the age of 60 and the average life expectancy is around 80 years. You have more than two decades to do whatever you want. You can tell your financial advisor exactly what you want. For instance, you want to send your kids to a university in the next 5 years and still have a comfy retirement. Financial advisors can make a portfolio based on your these needs especially for you, so you don’t have to struggle in the last decades of your life.
4) Tax Management
Let us be honest, nobody likes paying taxes. But still, taxes are inevitable, you can not escape them. The more you earn, the more taxes you have to pay and if not managed, taxes can become overwhelming.
A financial advisor, particularly a tax professional can help you with your tax burden while helping you with your investments. Although they also can not completely cut your taxes, they can help you minimize them.
Is financial advisor pay hourly?
In short, Yes a financial advisor can be paid hourly, but there are a lot of factors acting on this.
First, let us understand who are fee-only financial advisors. Financial advisors who belong to fee-only compensation structure are those who get a flat fee or an hourly fee instead of commissions or AUM based fees.
Although the cost of financial advisors’ hourly rate mostly depends on the financial advisor and the complexity of the project, the average hourly fee of a financial advisor ranges somewhere between $100 to $400.
However, this fee is for in-person financial advisors, if you opt for a Robo advisor, these fees can even go lower. Though both provide investment guidance and portfolio planning, a Robo advisor can not advise on topics like college savings planning or personalized investment advice. That is why Robo advisors are generally recommended for those who have fewer savings and simple projects.
$100 to $400 sounds too much, right? Well, there are some pretty advantages of paying a financial advisor hourly.
The prime benefit of paying a financial advisor hourly is that the chances of a conflict or dispute are minimum. When you work with a commission-based financial advisor, you will always have a concern that whether or not the advisor is recommending you a product because it is valuable
for you or the advisor just wants to make some profit. This concern does not exist in fee-only advisors because they do not sell financial products.
Even though fee-only financial advisors are generally recommended, their compensation structure does have some cons. The first reason is obvious, fee-based advisors can be costly. The second reason is that when the advisor does not sell a product but recommends a product, you have to work with another person who sells the product. In this case, the second person will also charge some commission, so you will end up paying both fees (to your advisor) and commission (to the second person).
How much do I have to pay my financial advisor?
The fee your financial advisor will charge depends on various factors: their compensation structure, the experience of advisor, and the complexity of the project.
What are the compensation structures? Primarily, there are five types of compensation structures.
1) AUM (Assets under management)
– A fixed percentage of the total assets your advisor manages for you will be the fee. This percentage is generally around 1% per year for human advisors. For instance, if your financial advisor is managing your assets worth $1 million, his or her fees would turn out to be somewhere around $10,000 per year.
However, some financial advisors do not charge an AUM fee unless your assets meet a minimum value. This can be around $250,000.
2) Hourly Charges
– As we have explained earlier, the hourly rate can be between $100 to $400. This is specifically charged for a consultancy or a special project.
3) Fixed Charges
– These charges generally ranges from $1000 to $3000 depending on the service. These are fixed charges for creating a financial plan and there are no ongoing management and consultancy services.
– Financial advisors earn only when they sell you a product or service. Suppose they sell you insurance or stocks, they will earn a commission for selling these. One thing to note here is that the chances of conflict are highest in this structure.
5) Bounty based fees
– When you reach a defined bounty or benchmark, an additional fee is charged.
Most financial advisors generally use one of these compensation structures or a combination of these. For instance, a financial advisor can charge you an hourly fee, but when he or she sells you a product or service, he or she will get a commission as well. So, the financial advisor is earning from both fees and commissions.
Budget for finding a financial advisor, a tips
So, you have decided that hiring a financial advisor is a good financial move. But, there is no general budget for a financial advisor because of so many factors acting on it.
There is no average budget, sounds downright depressing, right? Don’t be. We can still give you tips and plans to select a financial advisor.
The most important point you should remember is that you only need to pay for what you need. If you are an average guy with decent income, and you need only a basic investment plan, paying too much hourly and flat fees will be unnecessary. So, in this case, you ought to consider opting for a Robo advisor. Robo advisor is comparatively cheaper and you will still receive a good investment portfolio.
Or, if you are businessman with assets valuing over $400,000 (let’s say), paying for financial advisor can be a good move. In this case, you had better not afraid of paying 1 percent of your assets per annum.
Why should not I be afraid to pay 1% of my assets? Because in a research, people working with financial advisors reported an additional 4 percent investment returns per annum. Now, here are some tips for finding a financial advisor.
- Before you find a financial advisor that suits your needs, make sure to check his/ her credentials and experience.
- Before you hire any financial advisor, make sure to interview him properly, and if you find anything suspicious, back off because he or she can be a fraud.
- When you go for a human advisor, consider going for one who follows fee-only structure rather than the one with fee-based structure. This is because fee-only advisors are easy to deal with and chances of conflicts are minimum.
- Lastly, consider hiring a financial advisor you know in person, or someone recommended to you by a friend or family member.
- When you finally hire a financial advisor, make sure to tell him/her everything. Don’t be afraid to share your desires and problems. They can only help you if they understand what your financial goals are.