The Cost to Work with a Financial Advisor in Grand Rapids

Financial advisors serve as navigators to steer you through the complex maze of saving, investing and planning. But in Grand Rapids, Michigan, as with anywhere, the costs and fees associated with their services can often be confusing. So, you may be asking: How much does it truly cost to hire a financial advisor in Grand Rapids?

The confusion often arises because financial advisors have various charging methods.

Generally, financial advisors use three main cost structures:

1. A percentage of assets under management.
2. An hourly, annual or flat fee.
3. Commissions from recommended investment products.

Advisors who charge a percentage of assets under management (1) or a flat fee (2) are known as fee-only advisors. While those who earn commissions (3) are commission-based advisors. There are also fee-based advisors who may charge both a fee and commissions.

You’ll find Grand Rapids financial advisors charging all different types and at different rates. You can learn more about us here.

But, to help you better understand the cost of working with one, let’s go through these three cost structures.

Cost of fee-only AUM Financial Advisors in Grand Rapids, MI

A vast majority of financial advisors adopt the assets under management (AUM) fee structure.

Under this payment model, an advisor will withdraw a certain percentage of your account as an advisory fee. The fee is typically deducted quarterly, monthly or annually.

A standard advisory fee is around 1%.

Here’s how it works:

If you invested a $1 million portfolio with a financial advisor who charges 1% AUM, you’d pay a $2,500 quarterly advisory fee (1,000,000 x 0.01/4 = 2,500).

However, many fee-only advisors use a tiered pricing model, with the fees decreasing as your AUM increases:

• A $1 million portfolio might be charged at 1%;
• A $3 million portfolio is then charged at 0.75%;
• And a portfolio worth $10 million might have a 0.5% fee.

Bottom line: with a Grand Rapids fee-only financial advisor, the cost will vary based on the fee percentage and fee structure. And, since the fee is based on the size of your account, which will change based on investment performance, the amount you pay could change from statement to statement.

Why consider a fee-only AUM advisor in Grand Rapids?

Benefits

Many financial advisors prefer AUM pricing because it aligns their goals with the client. The better the client does, the better the advisor does.

Most importantly, fee-only financial advisors operate under a fiduciary mandate, ensuring they are legally obligated to prioritize clients’ interests.

What do you get for this fee?

Under the AUM model, you typically receive access to all the services a financial advisor offers, including financial planning, retirement planning, investment management and more. So, the advisor would help you implement your financial plan while also managing your investment portfolio.

For instance, Advance Capital Management is a fee-only financial advisor located in Grand Rapids, and you can view our menu of financial planning services here.

A fee-only AUM financial advisor is ideal for Grand Rapids and West Michigan residents seeking consistent, hands-on support.

Potential drawbacks

However, those looking for minimal advice and prefer a DIY investment approach might find other financial advisors more appealing.

What people may not like about the AUM model is the thought of paying fees even when their account declines or when they don’t need a lot of help. But this is balanced by the fact your investments generally need constant attention (buying and selling funds, portfolio rebalancing, making tax-efficient withdrawals, etc.).

Cost of flat-fee financial advisors in Grand Rapids

For financial advisors that operate under a fixed-fee model, the charges are pre-set and are typically on an hourly, quarterly or yearly basis.

Fixed fees and hourly fees typically apply to financial planning or consulting services, as well as special projects. According to a 2021 study by Advisory HQ, fixed fees typically range from $7,500 (for investments under $499,999) to $55,000 (for investments over $7.5 million). Hourly fees can be anywhere from $120 to $300 an hour, depending on the advisor and the complexity of the project.

Some Grand Rapids advisors may offer specific services at a fixed price. For instance, a comprehensive financial plan might cost you $1,000.

The overall cost largely rests upon the extent of assistance you need.

Who should consider a flat-fee advisor in Grand Rapids?

Benefits

The appeal of a flat-fee advisor lies in its pay-as-you-use format. Investors who need intermittent financial advice but are confident in executing plans independently might gravitate toward this model. Typically, this category includes those without intricate financial requirements – possibly younger Grand Rapids and West Michigan residents starting their investment journeys.

Potential drawbacks

However, this model might not resonate with those looking for an all-encompassing financial strategy. Notably, numerous flat-fee advisors aren’t authorized to handle investment transactions. Consequently, both the application of the plan and investment governance would rest on your shoulders.

Cost of commission-based financial advisors in Grand Rapids

Commission-based advisors earn through the sale of investments in the form of commissions and associated fees. Mostly, the investment or fund company compensates these advisers based on the amount you invest. Many commission-based advisors are broker-dealers.

Pinning down the exact costs with commission-based advisors in Grand Rapids is a tad challenging. The reason is that commissions aren’t always transparent. While the investment entity is technically paying the commission, it's indirectly drawn from your invested amount.

Therefore, you should recognize the potential conflicts of interest in the commission-based model. Given their earnings are linked to product sales, unbiased financial counsel might sometimes take a back seat.

Some advisors, known as “fee-based advisors,” use both models. They earn from service fees and product commissions, making their compensation a blend of the two. Their operation treads a nuanced line.

It’s crucial to differentiate between ‘fee-only’ and ‘fee-based’ advisors. The former strictly shuns commissions, while the latter can times act as a fiduciary but at other times prioritize product sales.

Who in Grand Rapids might prefer a commission-based advisor?

Investors who are steering their investment tactics might find a trustworthy commission-based advisor helpful.

However, for a comprehensive financial plan, most people should consider working with a fee-only advisor.

How to determine the costs of a financial advisor in Grand Rapids

While it would be convenient if financial advisors in Grand Rapids displayed their fees as visibly as gas stations do for gasoline prices, that isn't the case. Thus, the onus is on you to investigate and understand the costs. Fortunately, there are straightforward methods to gauge what a Grand Rapids or West Michigan-based financial advisor might charge.

Kickstart your quest by posing these crucial questions to your prospective advisor:

• How do you derive your compensation?
• Can you break down the overall charges and fees for utilizing your services?
• Are there any commissions or hidden fees that won't reflect on my statements?
• Will you consistently maintain a fiduciary role?

If an advisor hesitates or dodges these queries, consider it a red flag and think about looking elsewhere.

Additionally, the Securities and Exchange Commission mandates that anyone offering financial services or products disclose their compensation through the Form ADV. This paperwork unveils crucial details about an advisor's business, encompassing fee structures, account prerequisites, and any disciplinary actions they might have faced. You can usually find this form on an advisor's online portal.

The bottom line

In summary, financial advisors work under a variety of compensation models. If you’re weighing your options, understanding these models can prove instrumental in making a well-informed choice for your financial future.

At Advance Capital Management, we pride ourselves on being a fee-only, fiduciary advisor. If you wish to navigate the possibilities of partnering with a fee-only advisor tailored to your financial needs in Grand Rapids, schedule a call here with one our of advisors today, and let’s start a conversation.