Choosing the right financial advisor is a big decision, especially if you’re serious about securing your financial future. But sometimes, it can feel a bit like trying to decipher a secret code, right? You might be asking yourself: Why is an hourly financial planner better than an AUM financial advisor? We will demystify this question and look at why an hourly fee structure may be a better fit for your specific needs.
We’ll explore the advantages and disadvantages of both hourly financial planners and AUM financial advisors. That way, you can make the best decision based on your circumstances. Understanding the differences can help you confidently move toward a brighter future. You might find out that working with a fee-only financial advisor can save you a surprising amount of money and hassle.
Hourly Financial Planners
Let’s look at hourly financial planners and how they operate. They typically charge a flat hourly rate for their services, much like a lawyer or consultant. These professionals give personalized advice and cater to specific areas like retirement planning or college savings.
This model offers a transparent approach to financial guidance. So, it’s perfect if you want targeted advice without the long-term commitment of an AUM arrangement. If you are wondering, “Are AUM fees worth it?” an hourly planner may be a great alternative.
Pros of Hourly Financial Planners
- Transparency.
- Cost-Effective for Targeted Advice.
- Flexibility.
- Control.
Hourly rates offer clear, upfront pricing, so you always know what you’re paying. You’re not beholden to any hidden fees or percentages based on your assets. And, when you work with an hourly financial planner, you’re only paying for the specific advice you need.
This is ideal for individuals who might only require help with a few aspects of their financial plan. This fee model is great if you’re seeking more than just general financial advice.
If you find that you require more help or have specific questions, you have the flexibility to adjust the level of involvement from your hourly planner. Since it’s all on your terms, you dictate the scope of services and choose to dive into a topic or keep things surface level. This puts you in the driver’s seat.
Cons of Hourly Financial Planners
- Limited Ongoing Support.
- May Not Be Ideal for Complex Needs.
Hourly financial planners might not provide continuous, proactive investment management or portfolio monitoring like some AUM advisors. For intricate financial situations involving wealth management, tax strategies, and estate planning, a more hands-on, continuous advisory approach may be required.
AUM Financial Advisors
AUM stands for “Assets Under Management”, so with these types of financial advisors, the more money they manage for you, the higher the fees they get. They usually charge a percentage of the assets they’re handling. In return, they often provide comprehensive financial advice and management, actively working to optimize and grow their client’s portfolios. AUM advisors traditionally favor high-net-worth clients with complex financial situations.
Pros of AUM Financial Advisors
- Comprehensive Wealth Management.
- Active Portfolio Management.
- Proactive Advice and Monitoring.
AUM financial advisors cater to all aspects of wealth management. This goes from investment strategy and retirement planning to estate considerations and tax optimization. They’ll work diligently to maximize returns on investments and rebalance portfolios when needed to fit market shifts and personal financial goals.
Plus, with an AUM advisor, you get consistent support and proactive monitoring of your finances, so there’s no need to remember to check in or schedule additional calls for general guidance. It’s important to clarify with each advisor the frequency of their monitoring to see if it aligns with what you would like, especially since these details are not often publicly listed.
Cons of AUM Financial Advisors
- Potential Conflicts of Interest.
- Higher Costs for Larger Portfolios.
Remember, fees based on a percentage of your assets can be quite expensive as your portfolio grows. There might be pressure from AUM advisors to discourage withdrawals to maintain a higher fee base. It’s something to be aware of as you make decisions for your wealth. Some analysts even warn that fees can negate your investment growth over time, particularly in volatile or flat markets.
Research shows the difference in investment gains after a twenty-year period. A fund with a 1% annual fee could yield $30,000 less compared to a fund with only a 0.25% fee. It highlights the compounding effect of fees, according to a bulletin from the SEC’s Office of Investor Education and Advocacy. So, think carefully.
Why An Hourly Financial Planner Might Be the Better Choice
Consider this. What if your advisor wasn’t driven by their fee growing in line with your assets and instead was focused solely on your specific needs? You could pay for the advice you need and work with an advisor who truly cares about getting results. Many folks feel more comfortable with the flat-rate model offered by hourly financial planners, which helps with things like life insurance, capital gains taxes, and personal loans.
Control and Transparency: A Big Plus.
Many individuals these days value transparency. Most people want simple and direct fees. In fact, over 60% of people ranked this as their top priority when working with financial advisors, according to research firm Hearts & Wallets. An hourly planner allows you to dictate the scope and cost of their services. It can create a strong feeling of control over your finances.
Always prioritize finding an advisor that is ‘fee-only’. “The first question investors should ask is whether the adviser is ‘fee-only,’” says Allan Slider, founder of FeeOnlyNetwork.com, a website for consumers to research and connect with vetted fee-only, fiduciary financial advisors.
This ensures they’re compensated directly by you and are less likely to steer you toward financial products that generate additional commissions. Tom Koleski, a well-respected advisor, feels that a tiered approach is essential for offering equitable financial advice. He aims to provide investors “the option to pay for only the services they need” within a holistic planning framework, as he explained.
The AUM Fee Can Be Misleading
Why an hourly financial planner is better than an AUM financial advisor can be because assets rising due to market gains alone inflate AUM fees without always reflecting the value of your advisor’s direct contributions. The percentage stays consistent, even if your financial needs are not consistent or require less effort and guidance. This is often a drawback.
When you factor in these fluctuating markets, hourly rates can look even better because they’re immune to market swings. This fee structure gives you one less thing to worry about if your risk tolerance is low.
Who Is the Best Fit?
Choosing between hourly and AUM financial advisors depends entirely on your situation, needs, and financial goals. Someone comfortable managing investments might choose an hourly advisor for periodic advice. Another person, who has intricate financial affairs, a sizeable portfolio, and limited time, might be a good candidate for an AUM advisor.
You must ask yourself how comfortable you feel managing your assets, the level of advice needed, and how complex your financial life is. Then you can figure out the right fee structure. This is similar to how credit card interest rates work, with different options available depending on your situation.
Verify the Advisor’s Credentials
Regardless of their payment structure, verifying an advisor’s qualifications and registration is always recommended. Resources such as the SEC and FINRA provide helpful information to ensure they’re in good standing.
FAQs about Why an hourly financial planner is better than an AUM financial advisor
FAQ 1: Is a Financial Planner Better Than a Financial Advisor?
The best type of financial professional depends on what you’re looking for. Both can be valuable. “Financial advisor” is a broad term. This often refers to individuals offering investment-focused guidance. Financial planners, though, take a more holistic view of your finances, covering aspects beyond investments.
Some examples include budgeting, debt management, and retirement. If you want an approach to your whole financial well-being, a financial planner is a great choice. Ultimately, both titles and services overlap so make sure to read each firm’s descriptions carefully.
FAQ 2: Are AUM Financial Advisors Worth It?
AUM financial advisors offer extensive investment and financial guidance, which some find invaluable. The downside though, as you accumulate wealth and assets under management grow, fees can become considerable. Weigh the value provided by active management, monitoring, and guidance.
For investors who lack the time, expertise, or desire for hands-on management, the service might justify the cost. For those looking for targeted advice or managing a larger portfolio, it may be wiser to pursue alternative options. Don’t be afraid to research different advisor options and ask many questions before making a choice.
FAQ 3: What is the Best Type of Financial Advisor to Have?
The most fitting financial advisor will match your needs, financial goals, and comfort levels. An hourly financial planner is best when you have simple needs, want transparent pricing, and don’t need regular check-ins. Someone needing more support, however, or ongoing management, should consider an AUM advisor.
The perfect fit will resonate with you on both a personal and professional level, offering clear communication and sound advice. When comparing AUM fees vs. hourly rates, consider your individual circumstances and preferences to make the best choice.
FAQ 4: What is a Disadvantage of Hiring a Financial Planner?
Hourly planners often excel at delivering advice, guidance, and developing plans. One drawback might be the lack of hands-on portfolio management that you see from AUM advisors. You will be managing those aspects independently.
Conclusion
As you decide what route works best, you’ve seen some compelling reasons why an hourly financial planner is better than an AUM financial advisor. The key takeaways highlight that transparency and alignment with your needs and budget are fundamental aspects of financial success. To dive into this topic further or learn more about financial advice in general, I invite you to join my weekly newsletter. You can also sign up for my dedicated newsletter designed for those who are interested in advice-only, hourly, and flat-fee financial advisor options.