My wife and I are in our 60s and will get $9,600 a month in income. An adviser wants to charge $265 an hour to give us advice. What’s our move?
While scanning Reddit the other day, I came across a question about hourly financial planning fees that seemed like an illuminating one to answer, as many MarketWatch Picks readers write us asking about financial adviser fees:
Question: Is $265 an hour high for a fee-only planner? I’ve recently contacted a certified financial planner (CFP), who said we’d talk about what my wife and I want him to accomplish as far as our goals, risk tolerance, etc. He stated that usually it’s between 15 to 40 hours of work, depending on how much planning we want done, though it could 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’re 60 and 61 years old, and I plan on retiring in 2024-2025, when I’ll be getting around $5,000 per month, with a 3% cost-of-living adjustment every year. I also receive $1,900 a month from my old job and my Social Security will be $2,694 at 62 if I take it then. We are all equities, heavy on tech (Apple, Tesla, Microsoft, Google) with maybe $500,000 of it in index funds. We don’t plan on ever needing our brokerage/IRAs to live on. My wife also owns a small business that brings in $50,000 a year. We have low bills, our home is worth $375,000 and we have a rental home worth $225,000 that brings in $1,700 a month before expenses.
I just want portfolio rebalance advice. We would still control our assets, so what do you think is a reasonable amount of hours needed to do this and how much should we be paying per hour? – Reddit
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Answer: The very short answer is that $265 per hour is a reasonable fee for an experienced planner, pros say. Most hourly planners charge between $150 and $450 per hour, so what you’re paying definitely falls into fair territory. That said, you might be able to find lower rates. (Looking for a new financial planner? You can use this free tool from SmartAsset to get matched with a fiduciary adviser.)
Based 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 at Measure Twice Financial. “Given the hourly rate of $265, I expect the total fee to be between $5,000 and $7,000. Assuming that you select a competent financial planner, the tangible benefits of their advice will likely exceed multiples of their fee, especially with thoughtful Social Security and tax planning,” says Garrett.
Certified financial planner Mark Struthers at Sona Wealth Advisor also says that $265 is reasonable, and that 15-20 hours might be accurate for how long this should take. “Most experienced advisers I know charge around $300 an hour. The 15 to 20 hours do seem like a lot if you truly just want to rebalance, and the number of accounts and investment complexity is low. The problem we run into is clients almost always want more than 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, it’s possible that 5 to 10 hours is enough, says Struthers. “Keep in mind that you’re paying for expertise, not just time … You’re not just paying for the hour you’re paying for the years of experience and education,” says Struthers.
If this price is of concern to you, you can also ask the planner to limit the scope of the engagement to just investment planning. “Buyer beware, you only retire once and financial mistakes can be costly. You may want to consider biting the bullet and paying for the full plan to ensure everything is lined up correctly for retirement. Limit the scope of the engagement after the full plan to solely investment advice and cut down your costs,” says certified financial planner Matt Bacon at Carmichael Hill & Associates.
Indeed, it’s important to understand how much time this could take with this planner. “The variance between 15 and 40 hours is large. To have a better estimate of total cost, you could cap the number of hours or ask for a flat rate engagement,” says certified financial planner James Daniel at The Advisory Firm. Flat rate or flat-fee advisers charge a predetermined amount, paid yearly, monthly, quarterly or one-time and that amount doesn’t directly correlate to the number of assets a client has in their portfolio. The going rate for flat-fee advisers can range between $2,500 and $10,000, depending on location and expertise, pros tell us.
What’s more, it’s possible you need more than just rebalancing advice. Based on the information you’ve provided, your combined investment portfolio balance is $1.55 million, with two-thirds invested in individual tech stocks. “You anticipate that your annual retirement income of roughly $115,000, plus your wife’s self-employment and net rental income will meet your desired living expenses without the need to distribute additional retirement income from your portfolio. Although you only seek portfolio rebalance advice, numerous variables will influence the recommendations. Please don’t miss the forest for the trees,” says Garrett. It might be beneficial for you to seek out a tax planning professional and an estate planning professional to help guide you further and ensure you’re set up for the best case scenario.
Indeed, in order to make a great recommendation, a conscientious planner needs to review many items and aspects of your finances beyond just reviewing your holdings and recommending a rebalance. “You might not plan on needing your IRA to live on, but you will be subject to RMDs at some point and they could be substantial, so having a plan in place to address those will likely be valuable,” says certified financial planner Cristina Guglielmetti at Future Perfect Planning.
In cases like yours, Struthers says it’s common for clients to want distribution plans too, which can take several hours because you’re integrating things like Social Security and pensions. “Things that might seem simple can take some time. I have had clients where it took more than 3 hours to just run through and take the risk questionnaire. If you think you may want different risk profiles for different accounts, that can easily take another hour or two and we haven’t even started picking investments yet,” says Struthers.
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Question edited for clarity.
