Advisor Minimums
Most advisors, in particular higher quality professionals with well-established practices have minimum requirements that you must meet to use their services. Minimums can be important indicators that determine which advisors you select to help you achieve your financial goals.
Types of Minimums
There are three types of advisor minimums:
- Minimum Asset Requirements - You must place a minimum amount of assets with the advisor, for example, $100,000, $250,000, or $500,000 to use his or her services. A high percentage of "investment advisors" have minimum asset requirements.
- Minimum Fee Requirements - Rather than placing a minimum amount of assets with the advisor you must agree to pay a minimum fee, for example, $750, $1,500, or $2,500. Some minimum fees can be for a project, such as a financial plan, or an annual fee. A high percentage of "financial planners" have minimum fees.
- Minimum Net Worth Requirements - Some financial planners have minimum net worth requirements instead of minimum fee requirements.
No Minimum Requirements
Some advisors do not have minimum requirements for three reasons:
- They prefer to work with investors who have fewer assets and/or a limited capacity to pay fees. This type of investor is their market niche.
- They want to expand their practices faster by working with a broader range of investors based on amounts of assets or payment of fees.
- The advisor provides financial planning services for an hourly fee.
Purpose of Minimums
Advisors establish client requirements so they are assured of receiving a minimum amount of compensation for their time and services. For example, an advisor knows his or her investment services require 20 hours of work per year and the advisor charges $200 per hour for his or her time. This advisor might have a minimum fee of $4,000 or a minimum asset requirement of $400,000 (1% of $400,000 is $4,000).
Dual Minimums
Some advisors have two requirements: a minimum fee for planning and a minimum asset requirement for investment services.
Negotiated Minimums
Some advisors are willing to negotiate their minimums and others are not. If you expect to receive significant assets in the future, lump sum distribution from a 401k plan or inheritance, you may be able to obtain the services of an advisor with a higher minimum now.
