Revealing the importance of hourly and fee only advice for maximizing your wealth. Choosing a financial advisor can feel like navigating a maze. 

With so many compensation models and industry jargon, it’s easy to get overwhelmed. But the key to finding the right advisor for your needs often boils down to understanding how they get paid. 

Today, we’re going to talk about one of the most transparent and client-focused options out there: fee only financial advisors, with a special focus on hourly fee structures.

Let’s cut through the noise and explore why these options can be a great choice for many people.

What Is a fee only Financial Advisor?

A fee only financial advisor is someone who only gets paid by their clients. They don’t receive commissions for selling you products, and they aren’t influenced by financial incentives from third parties. 

This is an important difference because the advisor or financial planner is not beholden to the third parties, and can make independent recommendations and decisions that are in your best interest.  

I was recently reminded about the ‘free’ financial planning that can be gained at various financial services firms. Most times in this situation ‘free’ really does mean free, but the financial advisor is thinking about presenting a financial plan to you and getting you to move assets to them or purchase certain investments. 

The Benefits of fee only Advisors

Here are some key reasons why fee only advisors are a smart choice:

• Transparency: You know exactly what you’re paying and what you’re getting in return.
• No Conflicts of Interest: Since fee only advisors and planners aren’t earning commissions, fee only advisors are less likely to recommend products that don’t serve your goals.
• Fiduciary Responsibility: Many fee only advisors and planners operate under a fiduciary standard, which means they are required to act in your best interest.

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What Is an Hourly Fee Structure?

Among fee only advisors, there are several different ways to charge for services, including flat fees, percentages of assets under management (AUM), and hourly rates. For many people, hourly fees are a great option.

How Hourly Fees Work

Hourly fee financial advisors bill you based on the time they spend working on your financial plan or particular financial situation. This might include meetings, research, analyzing your investments, or helping you tackle specific financial questions.

For example, let’s say you need help organizing your finances for an upcoming big life event. Maybe a detailed retirement plan establishing projections and recommendations around cash flow, withdrawal strategies to minimize taxes, and health insurance. 

Or establishing a charitable foundation to give to a beloved organization or cause(s) that matters most to you. If you work with a financial advisor or planner to create these tailored plans; you only pay for the time they require to provide you with the actionable deliverables. 

Hourly fees are particularly beneficial if:

• You’re working within a budget, and need advice for specific issues rather than ongoing management.
• You don’t want to hand over a percentage of your assets for advice.
• You like the flexibility of paying only for the time you use to achieve the unbiased answer you require.

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Why Hourly fee only Advisors Are a Great Choice

For many people, the idea of paying for financial advice by the hour feels more closely related to the attorney fee structure. And if you have not needed a lawyer or attorney and paid their fee; it’s similar to what we discussed in the What Is an Hourly Fee Structure? Section above.

However, if you have or have not paid for services on an hourly basis you may be more comfortable with this concept than committing to a long-term relationship with an advisor. Let’s dive deeper into why an hourly fee only advisor might be the perfect fit for you.

1. Affordability

Hourly rates can be much more affordable for those who need advice but don’t have the established net worth requirement to work with traditional financial advisors. Advisors who charge by AUM, for example, typically take a percentage (often 1%) of the assets they manage for you. 

This might sound small, but it adds up over time. Especially for people with larger portfolios.

Let’s say you have $2,000,000 in assets. An AUM fee of 1% would cost you $20,000 a year. With an hourly fee only advisor, you might pay $200 to $500 an hour, but you’re only paying for the time they spend working on your financial situation. 

For someone with straightforward financial needs, a few hours of advice might only cost $1,000 to $3,000 per year.

2. Flexibility

Unlike AUM models, where you’re locked into a percentage fee every year, paying hourly allows you to control the cost of advice. Maybe you only need help for a few months, or you just have one specific financial question. With an hourly fee only advisor, you pay as you go, and you can decide how much help you need.

Consider if you were preparing for retirement and needed a second opinion to fine tune your plan. Instead of signing up for ongoing management, you can opt for hourly advice. 

You can discuss your situation and describe what you would like to achieve. In just a few sessions, we can organize your retirement accounts, review your investment options, and build a sustainable withdrawal strategy. 

That’s the benefit of hourly pricing. Offering personalized, on-demand advice without a long term commitment.

3. No Pressure to Buy Products

One of the biggest advantages of a fee only model is that your advisor has no incentive to push certain products. This is especially true in an hourly model. 

Since they only get paid for the time they spend working with you, there’s no pressure to sell you insurance or mutual funds to earn a commission.

This transparency builds trust. When your advisor isn’t benefiting from the products they recommend, you can feel confident they’re acting in your best interest.

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Hourly vs. Other Fee Models: Which One Is Right for You?

Now that you understand how the hourly fee structure works, you might wonder how it compares to other popular fee models. Let’s break down a few of the most common ones.

1. Flat Fees

Flat fees mean you pay a set amount for a specific service. For example, a financial planner might charge $10,000 for a full financial plan. This can be a viable option for those who need a comprehensive, one-time service.

Pros: You know upfront what you’ll pay. No surprises.

Cons: Flat fees can sometimes be higher than hourly rates, especially for smaller projects.

2. AUM (Assets Under Management)

With the AUM model, you pay a percentage of the assets an advisor manages for you. This fee is typically around 1%, although it can vary depending on the advisor.

Pros: This model can work well for people who want continuous advice and don’t mind paying for ongoing management.

Cons: The more assets you have, the more you’ll pay. Even if the advisor isn’t doing more work. Over time, these fees can add up.

3. Commission-Based

Some advisors earn commissions by selling you products like mutual funds, insurance, or annuities. They might offer “free” advice, but they make their money by earning a cut from the products you buy.

Pros: You receive a solution or product that the advisor suggests.

Cons: Commission based advisors have an incentive to sell you products, which can lead to biased advice.

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The Fiduciary Standard: Why It Matters

One crucial aspect of fee only financial advisors, particularly those who charge hourly, is that they often operate under a fiduciary standard. 

This means they are legally required to act in your best interest. A fiduciary advisor must put your financial well-being above their own profit. 

This is especially important in an industry where not all advisors are held to the same standard. Commission based and some fee based advisors might only be required to recommend “suitable” products, which doesn’t necessarily mean the best option for you.

Just the advisor bases his/her belief that the recommendation is suitable for you based on your investment profile. 

Hourly and Fee only Fiduciary example

Let’s look at an example when an advisor / planner is and is not working in your best interest. You approach your planner (that upholds the fiduciary standard) and you have been working with them for a few years. 

You ask for recommendations based on your needs for life insurance, and an annuity to provide you with security in retirement. In this case the planner will research the best options for you and provide recommendations that best fit what you want to achieve.

Now let’s consider the advisor that is responsible for the suitability standard. Same scenario as above but now the advisor recommends the option that is suitable for you based on your investment profile. 

Your investment profile is based on your age, current investments, financial situation, and risk tolerance/capacity. And as long as the product or solution fits your investment profile the advisor can select the option that would pay him or her the highest commission. 

And in most cases that would be an increased cost for you. Now, at this point I do not have to ask what type of advisor / planner you would like to have making recommendations. 

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How to Find the Right Hourly fee only Advisor

If an hourly fee only advisor sounds like the right fit for you, here are a few steps to help you find the best one.

1. Ask About Credentials

Look for advisors who hold reputable credentials like the Certified Financial Planner™ (CFP®) designation. This ensures they have the education and experience to give you sound advice.

2. Check Their Fiduciary Status

Make sure your advisor operates as a fiduciary. This guarantees they are required to act in your best interest at all times.

3. Review Their Fees

Ask for a breakdown of their hourly rates and how they charge for different services. Make sure you understand what you’re paying for upfront.

4. Get a Feel for Their Process

Every advisor works a little differently. Some might offer virtual meetings, while others prefer in-person consultations. Find someone whose process works for you and your schedule.

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What’s next: 

Why Hourly fee and fee only matters

At the end of the day, working with a fee only financial advisor; especially one who charges hourly, can offer you the flexibility, transparency, and peace of mind you need when managing your finances.

Whether you’re just starting out or you’re preparing for retirement, having access to a trusted advisor / planner on an hourly and fee only basis allows you to get tailored advice without committing to long term, high cost management.

If you’ve been hesitant to hire an advisor because of cost concerns, or if you’re unsure whether your current advisor is working in your best interest, an hourly fee only advisor might be the perfect solution.

If you are interested in getting a few questions answered and a prepared deliverable that you can take action on let’s talk. By the end of the conversation you will know the exact hourly cost to get the answers and solution you need.