How to make sure you pay a fair price for the financial advice you need

When shopping for a financial planner, it’s natural to ask, “How much do you charge?” If you expect a simple, one-sentence answer, think again.

There are many ways that advisers get paid and it can get complicated. Their fee structure reflects the type of practice they want to run and the business model that reinforces their brand.

One of the best ways to vet an adviser is to ask how they arrived at their fee structure and why they chose it. What motivates them to charge the way they do?

“Every adviser loves to argue about which way [of getting paid] is the best and which is the worst,” said Chris Cybulsky, a certified financial planner in Austin, Texas.

Many advisers base their pay on a percentage of assets under management (AUM). The percentage, traditionally 1%, often varies based on the amount of a client’s investable assets.

Other popular options include charging an hourly fee or flat per-project fee (perhaps to craft a customized financial plan). In recent years, some advisers have adopted subscription pricing that offers tiers of ongoing service with different monthly or annual retainer fees.

If you want to hire an adviser for both financial planning and investment management, you might encounter a hybrid fee structure. That means you’ll pay a percentage of AUM for portfolio management plus a flat or hourly rate for financial planning (which could include help with household budgeting, retirement planning, estate or tax planning, etc.).

More advisers are favoring this hybrid approach because it stabilizes their income when markets plummet and clients’ investable assets shrink. It also gives them flexibility to serve a broader range of clients.

For instance, many early and mid-career professionals lack significant investments to manage or their assets are tied up in a tax-advantaged retirement account like a 401(k). But they may be willing to pay an adviser a flat fee for targeted financial advice and planning.

There are also advisers who earn commissions when they buy and sell certain financial products (such as annuities or mutual funds) or insurance policies on the client’s behalf. “Fee-only” refers to advisers who do not charge commissions and generate all their income from fees.