When selecting a financial advisor to help you achieve your financial goals, there are many factors to consider. Credentials, experience, trustworthiness, and service offerings all play a role. However, one of the most important aspects is the advisor’s fee structure, as it can significantly impact your long-term financial success.
Understanding Different Fee Structures
Financial advisors use various fee structures to charge for their services. The most common are:
Assets Under Management (AUM) Fees: Advisors charge a percentage of the assets they manage for you, typically around 1% annually.
Flat Fees: Advisors charge a fixed fee—monthly, quarterly, or annually—for their services, regardless of the size of your investment portfolio.
Flat fee structures provide an alternative to traditional AUM fees, allowing investors to receive high-quality financial advice without their costs increasing as their assets grow.
Comparing AUM Fees to Flat Fees
A key consideration when choosing between an AUM fee and a flat fee advisor is the long-term cost. While a flat fee may seem more expensive in the short term, over time, AUM fees can result in significantly higher total costs.
Here’s a comparison of how investment growth and fees differ between the two models. Assumptions include:
8% average annual investment return
1% AUM fee
Flat fee starting at $2,400 annually, increasing by 2% annually
$10,000 in additional contributions per year
Scenario 1: $100,000 Starting Portfolio
| Time Period | Value with AUM Advisor | Value with Flat Fee Advisor | Fees Paid (AUM) | Fees Paid (Flat Fee) |
|---|---|---|---|---|
| 10 Years | $331,086 | $320,128 | $20,072 | $26,279 |
| 20 Years | $796,371 | $800,244 | $74,372 | $58,314 |
| 30 Years | $1,718,443 | $1,838,237 | $196,003 | $97,363 |
| 40 Years | $3,545,744 | $4,091,948 | $451,069 | $144,965 |
For the first 10–15 years, the total fees paid to a flat fee advisor may be higher. However, beyond 20 years, the savings are clear—leading to hundreds of thousands more in net assets.
Scenario 2: $1 Million Starting Portfolio
| Time Period | Value with AUM Advisor | Value with Flat Fee Advisor | Fees Paid (AUM) | Fees Paid (Flat Fee) |
|---|---|---|---|---|
| 10 Years | $2,089,950 | $2,248,657 | $146,254 | $26,279 |
| 20 Years | $4,281,972 | $5,010,600 | $455,081 | $58,314 |
| 30 Years | $8625,976 | $11,030,264 | $1,081,119 | $97,363 |
| 40 Years | $17,234,636 | $24,159,934 | $2,335,785 | $144,965 |
Do you happen to have around $1 million in assets that you're looking to invest? If so, after 40 years with a flat fee advice-only financial advisor you would spend about $2.19 million less in fees and end up with about $6.9 million in assets more than with an AUM financial advisor.
The Case for AUM Fees
There are situations where an AUM financial advisor may be the right choice, particularly if you prefer to have someone actively manage your investments. If you are unwilling or unable to manage your own investments, paying for an advisor to oversee your portfolio may be worth the additional cost. Some advisors also engage in active management, though studies show that passive investing strategies tend to outperform active management over the long term.
That said, even many AUM advisors primarily use passive investment strategies while still charging a 1% AUM fee, making it important to weigh whether the extra cost is justified.
Why Flat Fee Financial Advice Makes Sense
Flat fee financial planning is an excellent choice for those who can manage their own investments but still want professional financial guidance. Key benefits include:
Lower long-term costs: Fees don’t scale with your portfolio size, allowing you to keep more of your investment returns.
Greater control over your investments: You maintain direct oversight of your portfolio while still receiving expert advice.
Fewer conflicts of interest: Since fees aren’t tied to investment products, advisors don’t have an incentive to recommend high-fee funds or unnecessary transactions.
If you’re considering flat fee financial planning, Strateon Intelligent Wealth offers comprehensive financial planning without the high costs of AUM fees. Schedule a free introductory meeting today to learn how Strateon Intelligent Wealth can help you achieve your financial goals.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in digital assets or cryptocurrencies.
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