The Hidden Costs When Working with Financial Advisors

When you begin a new investment, it’s likely that you’ll be provided with a breakdown of costs that you can anticipate hitting your account quarterly, annually or with some advisors upon investment. These fees can include anything from broker commissions, to maintenance fees, and even an upfront deduction from your initial investment money. However, this is only the beginning of the story and there can exist a series of additional hidden costs and fees that may surprise you. Take a look at some of the common hidden costs when it comes to working with financial advisors.


Some financial advisors charge a flat rate or a certain percentage of the sale of an investment you make through their help. These costs

are known as “commissions” and typically range anywhere from 3% to 8.5% of the investment price, depending on who you work with. Commissions most frequently take two forms:

Front-End Load: An advisor who uses a front-end structure will charge you upon the initial purchase of your investment. In this scenario, you would give the investor an amount of money to invest, and then pay a flat fee or percentage from that amount for their services.

Back-End Load: With a back-end structure, you wouldn’t be charged when you first purchase the investment. However, a flat fee or a percentage of your investment would eventually be deducted once you discontinue the investment.

Commissions can also be paid directly to the advisor from the investment company. For full transparency, ask for a clear explanation of how much the financial advisor will cost and from whom they will receive the fee if you purchase the investments they recommend.

Percentage of Assets

One of the most common ways that financial or investment advisors will charge you is by basing it on a percentage of the assets that they manage on your behalf. Average fees can range from 0.50% to 2.0% per year. In most cases, the more assets you have, the lower the percentage of your total assets they will charge.

You will also want to ask whether the advisor is fee-only or fee-based. Fee-only advisors only charge a fee based on your assets; they don’t earn additional commissions based on product sales. They have a fiduciary responsibility to act in your best interests. They are more likely to use low-cost funds in your account that reduce your overall cost.

In contrast, fee-based advisors may be able to collect commissions on top of the fees charged on assets.

Retainer and Flat Fees

According to this structure, you would be charged a flat fee at consistent intervals, either quarterly or annually, to utilize the ongoing financial services of your advisor. You can benefit from ongoing advisory if you have a more complex situation, such as ongoing stock options to be exercised, small businesses, rental properties, or receiving a regular income from your investments.

If you need guidance with a future financial investment, it would be useful to work with a financial advisor and pay a one-time fee. For example, when building an initial retirement plan, it makes sense to pay a flat fee for your advisor to crunch the numbers for you. Although the specific costs vary by project, keep in mind that you will likely pay out of your own pocket. The advantage of this price model is that it allows for easier budgeting, and the flat fee is not tied to the value of your investments or purchases.

Fees and costs can significantly differ with each of these compensation structures. The best way to know a financial advisor’s costs is to ask for a clear explanation of their compensation before you work with them on your investments. There are many factors to consider when you begin a new investment, but a trustworthy financial advisor will be able to help their clients with ease and expertise. For more information on how much investing may be costing you, please contact our Spinnaker Investment Group financial advisors.


The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.

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