Others speak about the “cost effectiveness” of paying a $200/hr fee for financial advice when your income is only $50k per year (which above the median household income in America, BTW).

THE COST SHOULD BE WHATEVER GIVES THE CLIENT THE BEST VALUE IN RETURN. If I can improve your investment returns by 7%, then paying me 1% has value. If you spend $500 on my advice and you end up $2000 richer at the end of the day, there is a return value to you … even if that $500 was for only 10 minutes of my time.

It isn’t the price you pay that matters … it is the value you receive in return for whatever you pay. This rule applies to every time you spend your money – you want to maximize the value you get for whatever price you pay.

The challenge with all of this is that sound, useful and valuable financial advice concerns a lot more than just your investment account (which most people in that $50k income range don’t have) … but most financial advisors focus ONLY in the investment realm. The reasons for this limitation? it is easier to demonstrate “value” in return for their fees on investment advice, especially when we’re talking about large sums of money under management.

Cash Flow management is the most powerful wealth-building tool for most average Americans, but it has been hard to build a viable practice (where the advisor can afford to stay in business) on Cash Flow management advice when nobody had perfected a way of monetizing (being paid for) that advice.

But even if the hourly rate is very high, there is GREAT VALUE for Cash Flow Management advice … EVEN for an average household income.

Example – a person spends two hours with an advisor in my firm working though our Cash Flow Hydrant Process (which teaches a different way of looking at the money you’re spending and how you are spending it). On average, that person will immediately improve their Cash Flow (by cutting expenses) by 5% of their overall income (our objective is 10%, but that can take a year or two of work). On $50k of income, that means an additional $2000 going towards savings in the first year alone (after all fees have been subtracted). The fee for this service is $500 and a few hours of your time. That is an 400+% return on your investment in year one. Not bad.

Meanwhile, if that same person spent $500 for two hours of my time and I did nothing to help them save money or build wealth in any way (which is more common with salespeople and investment … then I charged too much for my advice and would be just another small part of a very big problem.

It’s usually more important to find out how much you answers will cost then what the hourly rate is. How long it takes an adviser to deliver advice varies as much as hourly rates do. Also, you want to be sure that there is not another line of compensation in the background creating a bias. There are a lot of advisers that charge a fee for advice and tow the “unbiased” line but also receive referral fees, commissions, and other payments based on the advice. You might pay less per hour and be advised toward actions that end up costing you more.

Pelon: “Luckily, my state has no licensing requirements for financial advisers so that is less of a concern for me.

Aaron: “Most states do not have registration requirements for small advisory firms who give investment advice (registered investment advisors).”

I’m only aware of one such state, Wyoming, but advisory firms in that state are required to register federally with the SEC. Also series 7, 63, are specific to sales and distribution not advice.

Annual costs to maintain registrations, licenses, certifications are not extreme. If you are advising people about their finances, you’ll want professional liability insurance, and that can be expensive. It’s not so much a question of whether you’ll do something wrong; it’s more a question of whether someone might try to blame you anyway.

This all sounds confusing and bureaucratic, and it is to some degree. But it is a good idea to have some formalized background before giving advice. Even if you disagree with certain philosophical stances of the education, at least you will have a foundation to express those differences.

-former investment advisor representative

That’s it in a nutshell. The market for people willing to spend $75 – $250 per hour is extremely small compared to the number of people who need financial advice. I’m in a similar situation to you. I have a full time job that I have no intention of leaving anytime soon, but I’d like to start a side business selling financial advice. The people I’m most interested in helping are middle income folks who have a household income from 25 – 100k. If you tell them that you are going to charge them $75 per hour, they will laugh and walk away. With this demographic, you probably can’t get much more than $25 per hour. If you have to pay a lot for licensing and certifications, that rate may make it difficult to break even. Luckily, my state has no licensing requirements for financial advisers so that is less of a concern for me.

$25 per hour isn’t enough if someone needs a complex estate plan, creative tax plan, or similar advanced help. The vast majority of the market doesn’t need those things, though. They need simpler help like how to invest in their 401k, what mortgage to pick, and how to save for college. I think $25 per hour is reasonable for that type of help.

Many offer fee-only advice and have reasonable per-hour rates as well as project and retainer options.

http://www.myfinancialadvice.com

I think the biggest problem is that the people who need advice the most are more easily taken by salesmen and brokers. For 2 reasons:

1. They tell them what the client wants to hear, “I can make you 20% a year” or “All my stuff always beats the market” yada yada yada
2. Their fees are hidden, oftentimes embedded in their products – there’s a behavioral element in that people scoff at paying $200/hr for anything but they won’t hesitate to buy funds with 5% front end loads (they don’t realize the true costs)

On the other hand, people who are not likely to be taken by salesmen are usually those who can spend some time on google / boglehead’s forum / etc., sort out the good from the bad, and do it themselves.

So your market for clients as a honest fee-only advisor is limited. Either you have to convince those in the first group that they’re being lied to and paying too much for subpar performance (something they’re not going to want to hear) or you have to find those in the second group that are either too busy to do it themselves or who would rather spend their time doing other things and are willing to pay for your advice.