How you pay your financial advisor significantly impacts your total costs over time. The two most common fee structures are AUM (Assets Under Management) and flat fees. Each has distinct advantages.
Assets Under Management Fee
AUM fees are charged as a percentage of the assets an advisor manages for you, typically ranging from 0.25% to 1.5% annually. As your portfolio grows, so does the dollar amount you pay.
Flat Fee Financial Planning
Flat fee advisors charge a set annual or project fee regardless of how much money you have. Fees typically range from $2,000 to $15,000 annually for ongoing services.
| Aspect | AUM | Flat Fee |
|---|---|---|
| Cost for $500K Portfolio | ~$5,000/year (at 1%) | ~$4,000-$8,000/year |
| Cost for $2M Portfolio | ~$20,000/year (at 1%) | ~$6,000-$12,000/year |
| Advice on Non-Portfolio Assets | May be reluctant (not paid for it) | Fully included in flat fee |
| Incentive Structure | Grow investable assets | Meet client goals holistically |
| Payment Method | Deducted from portfolio | Paid via check/transfer |
For portfolios over $1 million, flat fees often provide better value. For smaller portfolios, AUM can work well. Always calculate the actual dollar amount you'll pay annually under each model.
Generally around $750,000-$1,000,000. Do the math: if 1% AUM = $10,000 but flat fees are $6,000, you save $4,000 annually with flat fee.
Many do, but some focus on planning and recommend you implement investments yourself or use low-cost options. Ask specifically what's included.
Yes, especially for larger portfolios. Many advisors offer breakpoints - lower percentages as assets increase. Always ask for a fee schedule.
Now that you understand the difference, find the right type of advisor for your needs.
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