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How Much Does a Financial Advisor Cost?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Spending money to save money may seem counterintuitive, but hiring a professional can be one of the best ways to ensure you’re on the right track to meet your financial goals. From preparing for retirement to diversifying your investment portfolio, financial advisors can make sure all your ducks are in a row.

But how much do they cost? And who, exactly, are they?

What does a financial advisor do?

Broadly speaking, financial advisors are professionals who assist their clients with all manner of financial planning, from allocating invested assets to preparing for long-term financial goals like retirement.

But there’s no one set, formal designation that all financial advisors must acquire — which can present a danger to the consumer.

Malik S. Lee, the founder of Atlanta-based wealth management firm Felton & Peel, explained that there are “about 140 to 150 different designations out there,” resulting in a dizzying alphabet soup of certifications and honorifics. But regardless of how official they sound, not all these so-called “certifications” are actually rigorous programs, and some may not be overseen by a governing board or body.

Before you hire any financial advisor, your best course of action is to look up your potential planner’s designation in the Financial Industry Regulatory Authority (FINRA) database. You’ll be able to see exactly what kinds of hoops they had to jump through as well as any listed complaints or disciplinary measures. This can help you ensure that your advisor’s knowledge and recommendations are worth the cost of their services.

How much does a financial advisor cost?

How much a financial advisor costs depends on a variety of factors, including where you live, what kind of financial advisor you’re talking to and and the specific financial advice you’re seeking. In general, financial advisors operate under one of the following common fee structures.

Commission-based

As in any other commission-based sales industry, financial planners who use this pay structure receive a certain fee when they sell a specific product — often an annuity, life insurance plan or mutual fund. According to Lee, these fees usually are expressed as a percentage of the product’s purchase price, ranging from about 2.5% to 7% for annuities and 5% or 6% on mutual funds.

Fee-only

Fee-only financial advisors don’t sell specific products for commission but rather offer their planning services for a given fee, which might be assessed in a few different ways. The most common are flat fees, hourly rates or percentages of assets under management.

  • Flat fees are just that: pre-negotiated rates you agree to pay for certain financial planning services. Depending on the firm and the specific service, they might range from about $750 to $5,000 and may or may not include a set amount of follow-up time during which you can ask questions or make changes. Always be sure you’re clear about exactly what’s included in the flat rate before you sign any paperwork.
  • Hourly rates are charged per hour worked and may fall anywhere from $150 to $450. Typically, higher rates will be charged by more seasoned planners or those working at their own firms, whereas larger firms are able to pool their time and resources in order to keep their hourly rates lower.
  • Assets under management (AUM) are fees charged as a percentage of the value of the assets you entrust to the financial planner. The average AUM cost has been “working its way down over the course of the years,” according to Lee, and now sits at about 1% to 1.25%. “If you’re paying more than that,” said Lee, “you’re overpaying.” But it’s important to keep in mind that some advisors require a minimum AUM fee — that is, a minimum payment to the advisor. That might mean you’re getting a less generous deal if you have less money. For instance, if you place $100,000 of assets under the management of a company whose AUM charge is 1% but that requires a minimum AUM fee of $5,000, you’re effectively paying 5% — despite the apparently low AUM charge.
  • Other payment configurations also may be available depending on who your advisor is. For example, Lee’s firm offers financial planning services for a set monthly rate, while other planners might charge a percentage of your total net worth or income as opposed to a percentage of your assets under management.

Fee-based

Fee-based financial advisors are a composite of the above two structures: They perform comprehensive financial planning for their clients for one of the fee structures listed above but also sell products for a commission.

Other financial advisor fees and tangential costs

Along with the fee structures listed above, you may be responsible for other costs associated with financial planning services, such as:

  • Performance-based fees for hitting benchmarks, expressed as a percentage of your gains above a certain, preset threshold. These are sometimes known as “fulcrum fees.”
  • Flat fees for a la carte services or products, such as when you purchase a life insurance policy from a fee-based financial planner.
  • Investment-related fees, such as trade commissions or mutual fund management fees.

Not ready for a financial advisor’s cost? There are other options

Although some financial advisors, including Lee, prioritize making financial planning affordable even to those who don’t have towering net worths, professional help can be costly — and today’s all-digital world makes it easier than ever to DIY your finances.

For example, robo-advisors like Wealthfront and Betterment make it possible to create a diversified investment portfolio without too much research and at potentially lower rates than some financial planners. You also can open your own investment account with a brokerage like Fidelity or TD Ameritrade and take on the task of allocating your assets yourself.

Apps like Stash and Acorns make investing as easy as downloading an app and parting with a spare $5 — even if you know absolutely nothing about the market. But therein lies the rub, according to Lee: Because we do have so much access and information at our fingertips, it’s easy to DIY ourselves into a major financial flub.

By hiring a financial advisor, you can help safeguard yourself against financial accidents, such as undercontributing to your retirement plan or accidentally triggering an additional taxable event. Although technology has changed the face of financial planning, in many ways for the better, there’s no such thing as a piece of software that can create a comprehensive, personalized financial roadmap. To quote Lee, “You still need a human for that.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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Investing

7 Places to Find Free (or Almost Free) Investing Courses

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When it comes to investing success, you need a little luck and lot of know-how. While we can’t help with your luck, there are options aplenty when it comes to learning the ins and outs of investing.

7 low-cost investing courses you can take online

Whether you are the DIY type and want to manage your own investments or you want to better understand what a professional advisor is doing with your money, there are many low-cost classes and tools to help you build a brighter financial future. Even better, most of them can be completed online, on your own time and without leaving your house. Here are seven sources for free (or nearly free) investment courses.

1. Your broker

Let your broker help you if you have one. Many brokers offer online courses and educational tools to their customers. Some provide access to those resources even if you aren’t a customer.

For example, Fidelity offers a host of webinars, courses and coaching sessions to customers who want to be more actively involved in their investment decisions. Noncustomers can sign up for a free 30-day guest account, which provides access to some of those offerings as well.

TD Ameritrade also has a robust education page with free options for clients, including an immersive curriculum, videos and webcasts. For clients and nonclients alike, it offers free in-person educational seminars, but you’ll have to leave your house for those.

2. Morningstar

It’s amazing how much information is out there for the taking once you know where to look. For example, Morningstar provides a host of investment information options, including breaking news about the markets and advice on the best picks. It’s the Investing Classroom, however, that lets you really dig in. It offers 172 free online classes that cover stocks, bonds and more as well as tools to help you track your progress as you complete them.

You can register to take quizzes and earn rewards, such as free access to Morningstar’s premium service. Most of the classes consist of reading the course material and then taking a quiz to make sure you’ve absorbed it. How quickly you read will determine how quickly you’re able to complete the courses.

3. Udemy

Udemy offers online video courses that cover topics including everything from photography to marketing, but it has a strong selection of personal finance classes as well. There’s a fee for classes, but most are quite affordable. For example, well-rated courses such as “Easy Market Profits: 3 Step Stock Investing Strategy” and “Investing for Busybees” each cost about $20 (or less if you purchase them on sale).

You can search for courses by topic, by the ratings of others who have taken the courses, or by the number of hours the courses take to complete. Courses range from one to 17 hours and include on-demand video instruction, e-books, quizzes and more.

4. iTunes U

You can find free courses on almost anything you can think of, including investing, through iTunes U. They come from some of the top schools and leaders in the industry, and they’re all free. For access, just download the iTunes U app on your iPhone, iPad or iPod Touch and then scroll through the vast course offerings.

You can search by term, such as “stock market,” and download a course on financial theory from Yale University, which includes video instruction, reading materials and more. It provides access to almost everything you’d get if you were sitting in the classroom (except an invite to that big campus kegger).

5. Online college courses

For a top-notch education on investing, you don’t have to head off to campus or pay a pricey tuition bill, as many colleges and universities offer free online access to courses, including those on finance.

For example, Massachusetts Institute of Technology’s OpenCourseWare program offers online access to an array of courses, including video and audio lectures, assignments, exams, and more. You can take a course on investments, see the lectures, read the materials and take all the tests. Some are translated into other languages as well. You don’t even have to register. Just click, and access to an abundance of education is yours.

Other institutions of higher learning offer free online courses at edX. There, you’ll be able to glean the same information you would have if you’d attended a school like Harvard University, the University of California, Berkeley or the University of Texas. You can search for courses by topic and either choose to pay a fee to receive a certificate of completion or absorb the knowledge for free. For example, a verified certificate for the eight-week course on long-term financial management offered by the University System of Maryland costs $249, but you can complete the course at no cost if you don’t want or need the certificate.

6. eXtension

A comprehensive home study course on investing is available through eXtension. It’s offered as a collaboration between Rutgers Cooperative Extension, the U.S. Department of Agriculture, the U.S. Securities and Exchange Commission, and Financial Security for All. The free course consists of 11 units, including “Finding Money to Invest,” “Investing Small Dollar Amounts” and “Investment Fraud.”

All the materials are written, so you can read at your own pace. They’re also free, and in some cases, you may be able to get continuing education credit for completing a posttest.

7. Skillshare

If you can think of something you want to learn, Skillshare probably has an online course on it, and investing is no exception. Skillshare offers access to more than 25,000 online classes, and its investing course offerings are vast, including “Investing Basics for Millennials” and “Demystifying Cryptocurrency: Understanding Bitcoin and Beyond.”

The instructional videos range from a few minutes to several hours, and they’re taught by industry professionals. There are a significant number of free offerings, though some require a premium membership, which runs about $99 a year. It currently is offering a three-month premium membership trial for 99 cents, which may be a bargain if you’re good at cramming.

Investing information is there for the taking. It’s up to you just how deep you want to dig and how much time you want to spend. While education is always a valuable undertaking, when it comes to educating yourself about investing, it can pay off quite literally.

Looking for more help? Check out five places to get free financial advice.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Julie Ryan Evans
Julie Ryan Evans |

Julie Ryan Evans is a writer at MagnifyMoney. You can email Julie here

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Early Withdrawals From a Roth IRA: How to Avoid Penalties

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

A Roth IRA is a handy investment tool that lets you contribute pre-taxed funds to the account, allowing your money to grow over time. Taxed contributions mean you won’t pay any taxes when you’re ready to withdraw your money in retirement. In 2019, you can contribute up to $6,000 into a Roth IRA annually if you’re under age 50. It bumps up to $7,000 if you’re over the age of 50 (although income limits apply).

But the other benefit of a Roth IRA is that you don’t have to wait until retirement to take money out. When you use the funds the right way — such as a down payment on a house or to pay for college — you can take an early withdrawal from your Roth IRA without paying any penalties.

“When we’re talking about how to save money and where to put it aside, we’re looking now at the idea that using a Roth is almost a surrogate savings account and college fund and retirement fund,” said Dennis Nolte, a financial planner in Winter Park, Fla.

Understanding earnings vs. contributions

One of the key things to understand about a Roth IRA is that there are two parts to the money within the account: There’s the money you put in (contributions) and the money that grows in the account via investing (earnings). So, if you open a Roth with $5,000 and after two years the money has grown to $6,000, you have $5,000 in contributions and $1,000 in earnings.

It’s important to understand the difference between the two because you can only avoid taxes and penalties by withdrawing your contributions — and not earnings — before the age of 59 and a half. “You can take the principal out tomorrow because it’s already been taxed,” said Nolte.

Withdrawing from contributions

You can essentially take out contributions from your Roth IRA at any point without incurring taxes or a Roth IRA early withdrawal penalty. If you contribute $1,000 to a Roth today, you can withdraw $1,000 from the Roth tomorrow (although that’s not a sound savings strategy) because you’ve already paid taxes on that money.

Withdrawing from earnings

Earnings in a Roth IRA must be left in the account for at least five years or until the account holder reached the age of 59 and a half — whichever is longer. If you withdraw earnings early, you’ll owe taxes on the money and a 10% penalty.

The five-year waiting period begins on January 1 of the year you made your first contribution. As long as your withdrawal is five years from January 1 of the first year you contributed and you’re at least 59 and a half years of age, you’re in the clear. This rule applies to each Roth you may have.

You may be able to withdraw from earnings without paying taxes and penalties if you’ve had the Roth IRA for at least five years and one of the following applies:

  • The money was used for a first-time home purchase, up to a $10,000 lifetime limit.
  • You are permanently disabled.
  • You died, and your heirs received the money after your death.

You may also be eligible for early withdrawals from your earnings without incurring the 10% penalty, but you’ll still owe income taxes. Early distributions from a Roth IRA that qualify for this rule are as follows:

  • You have reached the age of 59 and a half.
  • You are permanently disabled.
  • You are the beneficiary of a deceased IRA owner.
  • You use the money to buy, build or remodel a first-time home.
  • The distributions are part of a series of substantially equal payments.
  • You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the year.
  • You’re paying medical insurance premiums while unemployed.
  • The distributions aren’t more than your qualified higher education expenses.
  • The distribution is due to an IRS levy of the qualified plan.
  • It’s a qualified reservist distribution.

There’s one other exception to this rule: If you withdraw your contributions and earnings from a Roth IRA by the tax deadline for the year in which you made that contribution, the IRS treats your contribution as though it had never happened. However, you must claim any earnings as income for that year on your tax return.

Withdrawing from a Roth conversion

The rules are slightly different if you convert a traditional IRA to a Roth: you must wait at least five years before you withdraw from that IRA. The five-year clock starts on January 1 of the year you made the conversion. You’ll owe income taxes and a 10% penalty for early withdrawals.

Reporting Roth IRA withdrawals

You’ll need to file a Form 8606 when it’s time to file your taxes in the year that you take withdrawals from your Roth IRA. Be sure to inform your tax professional or advisor so they can help you stay on top of your finances.

Bottom line

A Roth IRA is a great way to diversify your retirement savings, particularly if you think you’ll be in a lower tax bracket in retirement. You have limited options if you want to take money out of your Roth before retirement. Be sure to educate yourself on all the rules to prevent getting hit with penalties that will only erode your nest egg.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at kateashford@magnifymoney.com

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