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The relationship includes: Ongoing retirement and tax planning, management of all investment accounts, semi-annual strategy visits and ongoing check-ins.
For a service that is as important as managing your financial life, you should expect to pay a reasonable fee. In most instances, however, the fees charged by your financial advisor may actually be compounding as your investment assets grow. This is because most traditional financial advisors charge clients an Assets Under Management (AUM) fee, in which they deduct a percentage of the client’s investment portfolio every year. These fees may seem reasonable at first, presented as a “percentage” of your investment portfolio, but when translated to actual dollars the numbers can be surprising. Average financial advisor fees from a 2023 study are shown here.
See how the costs compare between these two charts:
For many high net worth investors, the fee they pay their traditional financial advisor is one of their biggest retirement expenses.
Under the traditional AUM fee model, this expense will grow every year, for the rest of their lives, with potentially no corresponding increase to the quality of the financial advice they receive.
In our opinion, the amount of time, effort, and resources for a financial advisor to manage a $2,500,000 or $5,000,000 portfolio is generally the same. The only difference between these two clients is the values on their account statements.
Financial planning and retirement needs: Both of these clients (one with $2,500,000 of investable assets and the other with $5,000,000) require financial plans of similar complexity. They both have unique financial goals they wish to accomplish, specific cash flows they expect to realize, and a known amount of portfolio assets to fund their retirement goals.
Investments: There is no real difference between them when it comes to investment management. Both portfolios should be rebalanced, invested appropriately and aligned with their target allocation and Investment Policy.
Client Service: Both clients deserve expedient service from a dedicated advisor, regular meetings, and ongoing planning support.
Fiduciary Standard: Both clients deserve an advisor who serves as a fiduciary in all circumstances, and for all account types. Their advisors should be required to act in the clients’ best interest at all times.
Although there is nothing inherently wrong with the AUM model, we believe it is important for investors to investigate how much they are paying in advisor fees in dollars, not in percentages.
Arcadia is proud to be a flat-fee wealth management firm and we do not charge AUM or percentage of assets fees.
We'd love to have a conversation about how we can help you make the most of your money.