Google isn’t likely to serve you up a tidy cost menu for wealth management services. That’s because wealth management isn’t one-size-fits-all. What you pay depends on your personal goals and financial situation.
But, you can still choose the right wealth manager for you and figure out what it will cost. You just need to understand how different wealth managers are paid and how your situation affects what you pay.
3 Factors to Consider When Budgeting for a Wealth Manager
1. There are 3 Main Models a Financial Advisor Can Use for Compensation
In the wealth management world, you’ll encounter a few different compensation models—or payment structures. Every compensation model has strengths and weaknesses depending on your needs and how the pay structure incentivizes your manager to handle your account.
Here are the 3 basic pay structures:
Flat-Rate Model
Want to keep things simple? You can find a wealth manager who charges a flat rate for their services. Common flat rates for 2023 ranged from $2,000 to $7,500 a year. You can also find wealth managers who charge by the month or by the hour for their financial expertise.
However, what all flat rate structures have in common is that they eliminate the manager’s incentive to grow the client’s assets. In other words, the wealth manager gets paid whether you get a return on investment or not.
Commission Model
Like a credit card company that takes a small cut every time you swipe, some wealth managers earn a commission every time you buy or trade investments based on their recommendation. Those investments can include mutual funds, stocks, annuities, life insurance, and so on.
This pay structure may incentivize managers to engage in more frequent trading of your assets and to recommend specific investment products.
That might be exactly what you’re looking for. However, use caution when engaging a commission-based wealth manager, as they work around incentives that don’t always align with their client’s best interests.
Fee-Based Model
This compensation model involves paying your wealth manager a percentage of your total assets under management (AUM). That means your wealth manager takes a fixed percentage of what you’ve invested year to year. The typical range for fee-based wealth managers is 1– 1.5% AUM.
This compensation model is called a fee-based or fee-only model. (There are small differences between the two, but the overall payment structure is the same.)
This model motivates your wealth manager to grow your assets, since their compensation increases as your investments do.
Assuming you choose a fee-based wealth manager, let’s look at what the pay structure could look like.
2. Your Total Assets Affect the Cost of Wealth Management Services
If you want to know how much a fee-based wealth manager will cost you, a good place to start is knowing how much you plan to invest. With a percentage-based pay structure, you can plan to pay your wealth manager a percentage of invested assets and come up with an approximate figure.
So, for example, here’s how you would calculate the fee for a $150,000 AUM at a rate of 1.25%:
$150,000 * 0.0125 = $1,875 per year
Keep in mind that, in some cases, there may be additional costs associated with some services or transactions. These could include financial planning fees, account maintenance fees, or trading costs.
In the end, more assets will mean a larger payout for the financial manager. However, being “wealthy” is never a prerequisite for seeking out and obtaining financial guidance.
3. Wealth Management Services Cost More or Less Depending on Financial Complexity
The range of services you require, and the intricacy of your financial situation will have some bearing on how much you pay your wealth manager.
If your finances are relatively straightforward (your assets are consolidated in one or two investment categories) you might find yourself at the lower end of the fee range. On the flip side, if your financial situation is more intricate, involving complex investment strategies, tax planning,
or estate planning, you might be closer to the higher end of the fee spectrum, reaching 1.5% or more.
Have an open conversation with your wealth manager about your financial goals, the services you expect, and how the manager’s fees align with your needs.
Understanding the factors that contribute to the cost of wealth management can help you make informed decisions about the value you receive for the fees you pay.
What to Discuss When You Consult with a Wealth Manager
The best way to get an accurate reading on what financial services will cost is to sit down with a wealth manager and discuss your goals. Prepare to discuss this list of topics:
- An overview of your financial situation, including income, expenses, assets, and liabilities
- Short-term and long-term financial goals, such as education savings, retirement planning, or homeownership
- Your risk tolerance and any specific concerns or preferences you have about your investments
- The wealth manager’s approach to financial planning, investment strategies, and the range of services they offer
- The wealth manager’s fee structure, including potential additional costs associated with their services
Get Wealth Management Services in the Reno, Nevada Area
American Wealth Management is a fee-based wealth management firm based in Reno, Nevada.
To schedule a free consultation with American Wealth Management and explore how their services align with your financial goals, click here and fill out the consultation request form.
This free consultation is the perfect chance to assess whether one of our wealth managers is the right fit for your financial needs and to establish a foundation for a successful long-term partnership.
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Investment advice is offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities. M.S Howells does not provide tax or legal advice. Please consult your legal or tax advisor regarding your individual situation.