While scanning Reddit the other day, I came across a question about hourly financial planning fees that I found the answer enlightening, as many MarketWatch Picks readers write to us asking about financial advisor fees:
Ask: Is $265 per hour a high price for a paid planner? I recently contacted a certified financial planner (CFP), who said we would talk about what my wife and I want him to accomplish in terms of our goals, risk tolerance, etc. He said it’s usually between 15 and 40 hours. of work, depending on how much planning we want to do, although it may be less or more.
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I have about $975,000 between an individual brokerage account, IRA, and Roth. My wife has $575,000. We are 60 and 61 years old, and I plan to retire in 2024-2025, when I will earn about $5,000 per month, with a 3% cost of living adjustment each year. I also receive $1,900 a month from my old job and my Social Security will be $2,694 at age 62 if I receive it then. We’re all stocks, with lots of technology (Apple, Tesla, Microsoft, Google) and maybe $500,000 in index funds. We don’t plan to ever need our brokerage/IRA to live. My wife is also a small business owner that makes $50,000 a year. We have low bills, our house is worth $375,000 and we have a rental house that is worth $225,000 and generates $1,700 a month before expenses.
I just want advice on portfolio rebalancing. We would still control our assets, so what do you think is a reasonable number of hours needed to do this and how much should we pay per hour? – reddit
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Answer: The very short answer is that $265 per hour is a reasonable rate for an experienced planner, professionals say. Most hourly planners charge between $150 and $450 per hour, so what you’re paying definitely falls into fair territory. That said, you may be able to find lower rates. (Looking for a new financial planner? You can use this free SmartAsset tool to find a fiduciary advisor.)
Depending on the complexity of your situation, 20 to 25 hours is a reasonable amount of time needed to provide comprehensive advice, says certified financial planner Cody Garrett of Measure Twice Financial. “Given the hourly rate of $265, I expect the total rate to be between $5,000 and $7,000. Assuming you select a competent financial planner, the tangible benefits of their advice will likely outweigh their fees, especially with thoughtful tax and Social Security planning,” says Garrett.
Certified financial planner Mark Struthers of Sona Wealth Advisor also says that $265 is reasonable and that 15 to 20 hours might be accurate for how long it should take. “Most experienced advisors I know charge around $300 an hour. 15-20 hours seems like a lot if you really just want to rebalance, and the number of accounts and investment complexity is low. The problem we run into is that customers almost always want more than what they initially say and think everything takes 15 minutes,” says Struthers.
That said, if you’re just looking for basic asset allocation and very little financial planning, 5 to 10 hours may be enough, Struthers says. “Keep in mind that you’re paying for experience, not just time… You’re not just paying for the hour, but also for years of experience and education,” Struthers says.
If this price is a concern for you, you can also ask the planner to limit the scope of the engagement to investment planning only. “Buyer beware, you only retire once and financial mistakes can be costly. He may want to consider taking the plunge and paying for the entire plan to make sure everything is lined up correctly for retirement. Limit the scope of engagement after the full plan to investment advice only and reduce your costs,” says certified financial planner Matt Bacon of Carmichael Hill & Associates.
In fact, it’s important to understand how long this could take with this planner. “The variation between 15 and 40 hours is large. To get a better estimate of the total cost, you can limit the number of hours or ask for a flat rate,” says certified financial planner James Daniel of The Advisory Firm. Flat-fee or fixed-fee advisors charge a predetermined amount, paid annually, monthly, quarterly, or one-time, and that amount does not directly correlate to the amount of assets a client has in their portfolio. The going rate for flat-fee advisors can range from $2,500 to $10,000, depending on location and experience, professionals tell us.
What’s more, you may need more than just rebalancing advice. According to the information he has provided, the combined balance of his investment portfolio is $1.55 million, with two-thirds invested in individual technology stocks. “You anticipate that your annual retirement income of approximately $115,000, plus self-employment and your wife’s net rental income will cover your desired living expenses without the need to distribute additional retirement income from your portfolio. Even if you are only seeking advice on portfolio rebalancing, numerous variables will influence the recommendations. Please don’t miss the forest for the trees,” says Garrett. It may be beneficial for you to seek out a tax planning professional and an estate planning professional to provide further guidance and ensure you are prepared for the best-case scenario.
In fact, to make a good recommendation, a conscientious planner needs to review many elements and aspects of your finances beyond simply reviewing your holdings and recommending a rebalancing. “You may not plan to need your IRA to live on, but at some point you will be subject to RMDs and they could be substantial, so having a plan to address them will likely be valuable,” says certified financial planner Cristina Guglielmetti. in Perfect Future Planning.
In cases like his, Struthers says it’s common for clients to also want distribution plans, which can take several hours because things like Social Security and pensions are integrated. “Things that seem simple can take some time. I have had clients who took over 3 hours just to review and answer the risk questionnaire. “If you think you might want different risk profiles for different accounts, that can easily take an extra hour or two, and we haven’t even started selecting investments yet,” says Struthers.
Do you have a problem with your financial advisor or are you looking for a new one? Send an email to picks@marketwatch.com.
Question edited for clarity.
