When it comes to comparing financial advisor fees, you may be wondering why different financial advisors charge widely different fee structures for their planning and investment advisory services. Over the course of your partnership, these fees and costs add up—especially if you begin working with a financial advisor early on in your career.
There are two main ways that most traditional financial advisors charge fees. One way is the assets under management (AUM) fee method, and the other is a flat-fee structure.
Before you choose a financial advisor, it’s important to note how these fee structures differ, and the impact these costs can have on your comprehensive financial plan.
What’s the difference between the assets under management fee structure and flat fees?
A traditional financial advisor that charges an hourly or flat fee for their investment advice, financial planning services, and investment management provides a set list of services for one predetermined fee, regardless of the size of your investment account. Flat fee-based advisors decide how much their financial advisory services are worth, then charge that same rate for every client across the board.
This fee structure is simple and straightforward, but it can be cost-prohibitive for those still building their wealth.
Another way many financial advisors charge is the assets under management (AUM) fee method. The AUM fee is a percentage, based on the value of your investment portfolio. The average financial advisor fee is typically between about 0.5% to 2% per year, but can vary based on how the financial advisors operate.
This annual fee scales up and down as your wealth changes, making it a flexible cost that pays for itself.
Why do some financial advisors charge AUM fees, while others use a flat-fee structure?
Financial advisor fees are closely related to the kind of financial planning services the firm you’re considering offers. Some advisory firms charge a flat fee because they offer mostly one-time services, like a single portfolio review or an investment audit.
Firms that use the AUM annual fee structure often provide ongoing services that support all your financial goals, like tax planning, investment advice, retirement planning, and other kinds of financial guidance. Because these financial advisory services have a long-term impact on your wealth, it makes sense to charge a rate that adapts with your investment portfolio.
At Cook Wealth, we use the assets under management fee structure. Here’s why:
Our financial advisor fee structure is based on a percentage of your assets under management, because we believe financial advising is a partnership between the investment advisor and the client. We want to participate in the success of our partners—and we’re willing to be held accountable when things don’t go as planned. That’s why the AUM fee makes sense for our team. As your assets increase, the dollar-value of your fee does too. And if your assets decrease, so does our compensation.
We feel that participating in the ups and downs of investment management with you is how we can show that we value your trust—and are willing to do everything we can to help you succeed.
Another reason we choose not to use the flat fee structure method is because that single fee can be cost-prohibitive for some clients. We want to work with a variety of clients and business owners, including ultra high net worth individuals and young professionals just beginning their wealth journey. While a flat fee may prevent some individuals from getting the investment strategies and guidance they need, our scalable AUM fees give us the flexibility to help new savers and high-earners alike.
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3 Questions to ask when comparing AUM fee-based financial advisors
Two different firms may have the same AUM fee, but offer very different levels of service. What questions should you ask to determine which firm is the better value for the same fee? Start with these three:
1. Are your financial advisors fiduciary?
Fiduciary means a firm is legally obligated to put your best financial interests ahead of their own. If they’re not fiduciary, they may do good work and they’re probably great people—but in the long run, you may experience conflicts of interest. Non-fiduciary financial advisors and commission-based financial advisors can receive flat fees and incentives to suggest certain financial products. These products may not always be ideal for your situation, which can make it difficult to fully trust their recommendations.
2. What services are included in your financial advisor cost?
The next question to ask is what services are included in the financial advisors fee, and which are extra. Most financial advisors will have a list of services they offer for the AUM fee, and a list of optional add-on benefits you can choose to leverage as-needed.
Look for included services that will benefit your financial goals today, and ones you might need years from now as your wealth grows. Do their professional advisor fees include building a comprehensive financial plan, helping you meet your financial goals, retirement planning, or personal finance guidance? When you choose your financial advisor, ideally, you’ll be with them for years or decades. That’s why it’s important to do your future self a favor and find a partner that can grow with you.
3. Do you take a partnership approach to investment management?
Your financial advisor should serve as a true partner, willing to work alongside you and support every aspect of your financial plan.
If the financial advisor you’re considering is reactive to your questions, doesn’t look into options unless you ask, or doesn’t reach out unprompted, they may not be the best personal financial advisor to meet your financial goals. Proactive firms, on the other hand, have dedicated systems in place that give them the ability to monitor your wealth, find earnings and savings opportunities, and guide you to smarter financial decisions. These financial advisors are with you today, providing benefits for tomorrow.
At Cook Wealth, our financial advisors prioritize your success
Our joint team of tax and financial advisors offer comprehensive tax planning, investment management services, estate planning, business advising, and more—so you can live life empowered. To learn what’s possible, book a complimentary intro call with our team.
