Financial planner presenting paperwork to young couple.

When people want to invest their money and grow their wealth, they understand there is a price to pay to do so. However, clients also do not want to spend all of their money on investment management fees. How do you strike a balance between your client seeing their investment portfolio grow and your RIA being paid fair investment management and/or financial planning fees? You understand what it is you are offering, the different options for payment, what kind of clients you have, and then determine what is reasonable. If you have questions about fees or need assistance setting your fees, Altitude Securities Law Office may be able to help. Call (405) 534-4914 to schedule an appointment and discuss the most appropriate strategy for setting your business’s fees. 

What Is a Financial Adviser vs. Financial Planner?

When determining reasonable investment management fees or financial planning fees, the first step is to be clear about the RIA firm’s role and the services you are offering. A financial adviser and a financial planner are two different, albeit related, roles. RIA’s operating in these capacities therefore may charge different fees. 

Financial Adviser

A financial adviser typically focuses on managing a client’s investment portfolio. In this role, the adviser would provide guidance and advice on a variety of financial matters, including investments, tax laws, and insurance. They would evaluate their client’s needs and help the client make informed decisions to build the client’s wealth and achieve their goals. 

Financial Planner

A financial planner looks at the client’s entire financial picture, including their long-term goals. The planner specializes in creating comprehensive financial plans, going beyond merely investing the client’s money. Financial planners consider many aspects of their clients’ finances and lifestyle, including savings, current investments, insurance, retirement, and estate planning. While a financial planner may also handle the client’s investments, they generally do so with the bigger picture in mind in order to help clients meet long-term goals such as funding a trust as part of their estate plan or considering their current level of wealth when determining how to invest and bring the client to a new level. 

What Are Typical Investment Management Fees?

While the terms “investment management fees” and “financial planning fees” are often used interchangeably, they may actually indicate two separate types of fees. There are many fees that financial advisers and financial planners may charge their clients. Most advisers and planners will charge a management fee to compensate for their time and expertise. 

What Is a Reasonable Financial Management Fee?

When attempting to determine what would be reasonable investment management fees, there are several things to consider. Financial planning fees are based on factors, such as who is doing the planning, what management fee type the business is using, and how personalized the services are. Altitude Securities may be able to assist you in determining the appropriate type and amount of fees based on the services you are offering.

What Types of Management Fees May Be Charged?

There are five common types of fees that financial advisers or financial planners may opt to charge their clients: 

  • Assets under management (AUM): This fee type charges a fee that is a percentage of the total amount of assets the adviser is managing. This means the fee varies depending on the amount of assets in a client’s portfolio. 
  • Flat annual fee: If a planner charges this fee, they are charging one fee for the entire year, regardless of how much time they spend working on the client’s portfolio or comprehensive financial plan. This fee often includes a comprehensive financial plan, help implementing the plan, monitoring and adjusting the plan as needed. This fee is usually a set fee for every client, regardless of the amount they have available to invest. 
  • Hourly: This fee works just as it does for anyone who works for hourly pay. The client is charged for the time they need. This time may include meetings (by phone, video, or in-person), as well as the time the adviser or planner spends creating the plan, buying or selling investments, or otherwise working on the client’s portfolio or plan. 
  • Per-plan: A per-plan fee is a flat fee that is charged per plan the financial planner or adviser creates. This usually includes a comprehensive plan and some guidance on how to implement and follow it, but the client is responsible for carrying out the plan and managing investments themselves. 

What Are the Average Rates for Those Fees?

Each of these fees has its own rate. With the exception of AUM, most of these fees are also set rates that are the same for all clients. There is no “normal” fee, as these rates vary depending on the fee structure used, the certifications an adviser or planner has, the services being offered, and geographical location. Average rate ranges are usually: 

  • AUM: 0.25-3.0% per year for a human adviser or planner
  • Flat annual fee: $2,000-$7,000
  • Hourly: $200-$500
  • Per plan: $1,000-$15,000

Is a 1% Management Fee High?

Whether a 1% management fee is high or not is likely to depend on how much the client has available to invest and what services the planner or adviser is offering for that fee. IClients are likely to discuss the fee, the services provided, and other available options before determining whether to work with a specific planner. Advisers can boost their chances of a client choosing to work with them by doing the following: 

  • Considering alternative fee structures: If a client is uncomfortable paying a 1% fee under the AUM fee structure, offering a retainer or hourly fee instead may make the client more comfortable. 
  • Compare fees to others in the area: If a financial planner or adviser is finding that many potential clients are choosing to work with others, the adviser may want to compare their fees to those of other advisers in the area to make sure their rates are comparable. While they may not want to charge the exact same rates as others, ensuring that their rates are in line with what other advisers are charging can help with getting new clients. 

Do You Have Other Questions About RIA Fees? 

RIA fees come in a variety of structures and may change based on your firm’s service offerings,  geographical location and other factors such as inflation. Choosing the right structure and pricing your RIA fees appropriately is important both to making a profit and to ensuring clients are happy with your services. If you need assistance with your fees, contact one of the experienced RIA attorneys with Altitude Securities at (405) 534-4914 to discuss your legal options.