A Different Way to Pay for Financial Advice: The Advice-Only Alternative to AUM
Not long ago, a couple I'd known for years met with me for an introductory meeting. Their situation was a great fit for the way I work, and I left the conversation excited to help them. A few days later, I got their email saying:
"...we have understood that the better route for us is to go with a financial advisor who will be managing our finances and investments on a regular basis for the ongoing percentage fee. This decision is solely based on our understanding of our limited knowledge of investing processes... we are afraid we won't be able to learn this science ourselves..."
I thought about that message for a while. I understand the decision to delegate though often it comes down to one belief: that investing is so complex, so technical, that only a professional could possibly do it well. If that were true, fully handing it off to someone is the obvious move.
But I'm not sure it's true. At least, not in the way most people assume.
The "science" is simpler than it sounds
Investing feels like something you have to master. In practice, for most households, a sound long-term portfolio is more learnable than the industry lets on. And as with many things in life, there's a spectrum of how simple or sophisticated you want to go:
Simplest: one fund, done. A target-date fund offered by Vanguard, Fidelity, Schwab, and others, handles the allocation, the rebalancing, and the gradual shift to bonds as you approach your goal. You pick the year, you contribute, you ignore. For many people, this is genuinely all they need. Another option is a life strategy fund, which offers a pre-set mix of stocks and bonds in a single, highly diversified portfolio.
Middle: a three-fund portfolio. A low-cost US stock fund (like VTI), an international stock fund (like VXUS), and a bond fund, in proportions matched to your timeline. Slightly more involved, but you gain control over allocation and tax placement.
More sophisticated: factor-tilted models. For clients who want it, portfolios built around evidence-based tilts toward small and value stocks (using Dimensional or Avantis ETFs, for example) can add expected return for those willing to tolerate tracking differences from the broad market.
There's no universally "right" choice here. The right portfolio is the one that matches your goals, your taxes, and your tolerance for complexity. That match is where a financial planner earns their keep.
A few things worth asking any advisor
Since the "1% advisor" label covers a wide range of practices, it’s worth knowing that the difference between them matters more than the fee. Before signing on with anyone, the following questions are worth asking directly:
Are you a fiduciary 100% of the time, in writing? Some advisors are fiduciaries only for part of what they do.
How are you compensated? Fee-only means the advisor is paid only by clients. Fee-based can include commissions on insurance or annuity products. The two words sound alike and mean very different things.
Do you or your firm sell insurance products, annuities, or proprietary funds? A "yes" isn't automatically disqualifying, but it changes the conversation. Products with commissions create incentives that are hard to set aside, even with the best intentions.
What does the total cost look like, including advisor fee, fund expenses, and any product commissions combined?
A good advisor will welcome these questions. If they don't, that itself is the answer.
What you're really paying for in the 1% model
A traditional AUM (assets under management) advisor charges a percentage of your portfolio every year, usually around 1%. That fee typically covers both investment management and financial planning. Plenty of good advisors work this way and deliver real value.
Here's the part worth seeing clearly: 1% sounds small, but it's charged on the whole portfolio, every year, and it grows as your portfolio grows. On a $1M portfolio, that's $10,000 the first year. Over 20 or 30 years, the compounded cost often runs into the hundreds of thousands of dollars.
This is not meant to discourage someone from working with an AUM advisor. It's just the math of percentage fees compounding alongside portfolio growth.
Try the calculator to see the numbers for your own situation.
Fee Impact Calculator
What does the 1% really cost?
Compare a traditional AUM fee against a flat advice-only fee over time. Adjust the inputs to match your situation.
How the advice-only fee is modeled: Year 1 covers the initial planning engagement. From Year 2 onward, ongoing hours are billed at $300/hr. The default of 6 hours reflects a typical pattern of two meetings a year at three hours each. Adjust as needed.
Projected portfolio after fees
The fee gap
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Additional dollars in your portfolio with advice-only vs. AUM after the period above.
Assumptions: 7% annual growth (a long-run, post-tax estimate; actual returns will vary). The AUM fee is charged at the end of each year on the portfolio balance. The advice-only fee is paid out of pocket: the planning fee in Year 1 and (hours × $300) in subsequent years. To make the comparison fair, each fee payment is treated as an opportunity cost and compounded at 7% to the end of the period. No additional contributions or withdrawals are modeled. This calculator is for illustration only and is not a forecast or investment advice.
What advice-only looks like instead
I work on a flat fee for the initial planning engagement, then on an hourly basis from there. You keep your accounts at Fidelity, Schwab, or Vanguard, in your name, under your control. We meet, we build a plan, I tell you exactly what to do, and you push the buttons. Or we do it together via screen sharing. No percentage. No ongoing claim on your portfolio.
For most clients, the ongoing relationship is light: roughly two meetings a year at three hours each, plus the occasional question between them. At my hourly rate, that comes to about $1,800 a year, a fraction of what a 1% AUM fee would cost on most portfolios.
The work on your end is real but modest: a handful of meetings a year, an hour or two of homework between them, and enough comfort to log into a brokerage account and execute the plan yourself, with the reasoning behind every step clearly laid out by me.
Who this isn't for
Advice-only isn't the right fit for everyone. If the idea of logging into a brokerage account makes you want to close the laptop, an AUM advisor who handles the trades for you is a perfectly reasonable choice. The best fee structure is the one that gets you to a good plan you'll actually stick with.
But if you've suspected you could handle more of this with the right guide, you probably can. And the fee difference, over a lifetime, is worth a real look.
The information shared in this article is intended only to provide general financial education, for informational purposes only. The information and opinions within should not be regarded as objective facts. The publisher cannot guarantee that content is accurate and updated to reflect changes in legislation, financial data, or opinion.
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Igor Aronov, the publisher of this content, is a registered investment adviser representative and owner of FAR Financial Inc.