For 30-some years, most financial advisers have gotten paid via an assets-under-management model, under which the adviser charges the client a percentage of assets they\u2019re managing \u2014 typically around 1%, with fluctuations depending on the total assets a client has.<\/p>\n
Indeed, more than 95% of SEC-registered investment advisers charge a fee based on a client\u2019s AUM, according to Investment Adviser Association data from 2024. Meanwhile, fewer than 50% charge a fixed or hourly fee or both. Most advisers, according to the data, offer asset-based fees like AUM in combination with other fee types such as fixed fees (retainers), performance fees (a percentage of gains) or hourly fees. (If you want a different fee structure for your adviser, you can find advisers using CFP Board, NAPFA and you can get matched with fiduciary advisers with this free tool<\/a>, from our ad partner SmartAsset.)<\/p>\n For some, the AUM model just doesn\u2019t sit right. If you have $1 million of assets and you\u2019re paying 1% AUM, that equates to $10,000 per year. If you have $2 million of assets, you\u2019d pay $20,000 per year, but the complexity of the work for the adviser likely isn\u2019t twice as challenging.<\/p>\n And for others, AUM just doesn\u2019t make sense. \u201cFor someone with a majority of assets within a company benefit plan, those assets can\u2019t be transferred for management to an adviser, but they require sophisticated planning to optimize taxes in retirement,\u201d says certified financial planner Mike Palmer at Ark Royal Wealth Management. \u201cAlso, recommending someone do an in-service distribution of 401(k) assets just so the adviser can get paid on those assets is at odds with how we work. Doing that would effectively end that client\u2019s ability to do backdoor Roth IRAs going forward, which is bad for the client,\u201d he says.<\/p>\n Today, advisers offer a range of services, including hourly and project-based financial planning, which appeal to a broader audience who may not have enough assets to qualify for the AUM model (many firms have asset minimums). <\/p>\n Palmer says while his firm is primarily AUM, they also have some fixed-fee clients. \u201cThe latter usually involve clients who need comprehensive financial planning but have assets within employee benefit plans like 401(k)s and deferred compensation,\u201d says Palmer. Additionally, those with specific questions they want answered or who don\u2019t need ongoing support, may find more value in a less expensive engagement. <\/p>\n The AUM model and fixed fee engagements also coexist for certified financial planner Mario Hernandez at Longevity Wealth Management. \u201cI think the AUM model needs to be reconsidered as a way of charging clients, especially in light of the evolution of AI and how investment management can be done much more cheaply with AI as a guide,\u201d says Hernandez. <\/p>\n As such, Hernandez says advisers should consider other ways to charge for their services. \u201cThat includes fixed fees in addition to AUM arrangements. This comes down to how the client perceives the value of your services. If you aren\u2019t doing much more than managing a client\u2019s portfolio, then the value of your service is probably not worth as much to a client as someone who includes financial planning services as part of that relationship. That is where flexibility regarding how to charge clients comes in and why advisers need to pay attention to a client\u2019s needs when deciding on a revenue model,\u201d says Hernandez. (If you want a different fee structure for your adviser, you can find advisers using CFP Board, NAPFA and you can get matched with fiduciary advisers with this free tool<\/a>, from our ad partner SmartAsset.)<\/p>\n The AUM model, though, still has its place \u2014 and in fact is best for plenty of investors<\/p>\n \u201cEven though the AUM model is often criticized, it can reduce the friction for investors who need professional guidance at critical moments,\u201d says Bobbi Rebell, certified financial planner and consumer finance expert at CardRates.com. \u201cIf you tie fees to assets rather than charging for each engagement, investors will be incentivized to have more frequent and more in-depth interaction with their adviser. It literally becomes less transactional and more of a conversation and an ongoing partnership oriented relationship.\u201d<\/p>\n When clients have to pay each time they want advice, they become fee sensitive and may avoid or delay reaching out, says Rebell. \u201cThis can spiral out of control and become very costly during stressful times like market downturns, exactly the time they need guidance the most. In other words, the AUM model takes away that barrier to making the call for help in turbulent and volatile markets,\u201d says Rebell.<\/p>\n The AUM model still makes sense for clients who want professional oversight because they may not have the time, interest or expertise to manage investments themselves, says certified financial planner Ryan Haiss at Flynn Zito Capital Management. \u201cAn AUM arrangement is usually a good fit for someone who wants ongoing portfolio management and access to investment solutions they may not find on a retail platform. It may be less appropriate for someone who enjoys managing their own investments and is mainly looking for planning advice or a second opinion,\u201d says Haiss.<\/p>\n What to look for in a financial adviser<\/p>\n The key for any fee structure, Palmer says, is providing value for the cost. \u201cThe primary focus should be that the adviser is working in the client\u2019s best interest. How they are compensated is a secondary issue, both fee models have a place,\u201d says Palmer.\u00a0<\/p>\n Indeed, \u201cclients today often need advice that goes far beyond managing investments to include navigating complex compensation, planning around major life transitions and making thoughtful decisions about spending, saving and supporting family,\u201d says certified financial planner Arielle Jacobs-Bittoni at Good Balance FP. For that reason, when the value of the relationship is broader planning guidance, Jacobs-Bittoni says a flat planning fee can be a better fit. (If you want a different fee structure for your adviser, you can find advisers using CFP Board, NAPFA and you can get matched with fiduciary advisers with this free tool<\/a>, from our ad partner SmartAsset.)<\/p>\n When looking for an adviser, note that CFPs are considered the gold standard in advising as they complete extensive education requirements, pass exams, perform thousands of hours of work-related experience and uphold a fiduciary duty, meaning they\u2019re required to put their clients\u2019 best interests ahead of their own. Advisers work under different fee models including AUM, hourly and project-based. Hourly planners often charge between $200 and $500 per hour while project-based advisers range from $1,500 to $7,500 depending on the complexity of the case.<\/p>\n","protected":false},"excerpt":{"rendered":"For 30-some years, most financial advisers have gotten paid via an assets-under-management model, under which the adviser charges…\n","protected":false},"author":2,"featured_media":338405,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[8133,138,44547,47880,246,47877,4039,47884,329,47879,111,139,69,244,245,29039,126448,126445,126446,126449,126447,11418],"class_list":["post-338404","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-analysis","tag-business","tag-corporate","tag-corporate-industrial-news","tag-finance","tag-financial-investment-services","tag-financial-services","tag-industrial-news","tag-investing","tag-investing-securities","tag-new-zealand","tag-newzealand","tag-nz","tag-personal-finance","tag-personalfinance","tag-securities","tag-selection-of-top-stories","tag-selection-of-top-stories-trends-analysis","tag-suggested-reading-industry-news","tag-suggested-reading-investing","tag-suggested-reading-investing-securities","tag-trends"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/338404","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=338404"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/338404\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/338405"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=338404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=338404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=338404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}