What is an Advisor Fee?

Also known as a financial advisor fee, an advisor fee is a fee that is paid by an investor to a financial professional in exchange for his or her recommendations on which load funds or other types of mutual funds to purchase as investments. The structure of the fee is based on several factors, including the amount of time the investor intends to hold on to the asset, and the share class of the investments involved with the fund. An advisor fee may also include a management fee if the investor wishes the financial professional to actively oversee the investment.

The purpose of the advisor fee is to reimburse the investment professional for the time and effort spent in evaluating possible investment options, based on the particulars provided by the investor. The advisor will consider how long the investor plans on holding the investment, the rate of return that is desired during that time, and the amount that the client can afford to invest in the mutual or load fund. Once the advisor has found several viable options for the investor to consider, he or she will go over each of the possibilities with the investor, taking care to point out both the potential returns as well as the risk levels associated with each option.

In some cases, the advisor fee is a one-time charge that is owed to the financial advisor. This is often the case when the intention is to hold the investment for a relatively short period of time. The typical amount of the fee will be around five percent of the value of the fund or funds purchased, unless there are any type of extenuating circumstances. Should the investor wish for the professional to be involved in the management of the investment, a monthly fee may be assessed. In situations where the intent is to hold onto the investment over the long term, the advisor may require an annual fee in exchange for looking after the investor’s interests.

Seeking the services of a qualified advisor is often a good strategy for newer investors, but seasoned investors may also find the expertise and knowledge of an advisor helps to minimize the effort required to find the ideal investment opportunities. While the advisor fee does represent an additional cost on the front end, selecting the right fund will usually result in returns that easily offset the advisor fee and allow the investor to realize a profit. Even if an investor already has some ideas on which funds to consider, having a professional advisor evaluate those funds is a wise move. Either the findings of the advisor will confirm the instincts of the investor, or bring to light information that the investor had not uncovered previously, allowing the investor to make an informed decision regarding the investment opportunity.