My Advisor Charges 1% on $2.2 Million. Should I Look for a Better Deal?

As your portfolio grows, so do the fees you pay to your financial advisor. With a $2.2 million portfolio, you're likely paying 1% in advisory fees, but is this the best deal for you? Let's explore the industry standards, additional services, and alternative fee structures to help you make an informed decision.

In the investment management industry, the standard rule of thumb is that financial advisors charge 1% AUM fees. However, as your portfolio grows, advisors often offer graduated rates and breakpoints that reduce fees for larger account sizes. According to a study by Bob Veres' Inside Information, the median advisory fee for high-net-worth clients is closer to 0.50% than 1%. This means that, on average, advisors with larger portfolios may be paying less than 1% in fees.

While the all-in cost of managing a portfolio is typically more than just the advisor's AUM fee, including product costs, transaction costs, and platform fees, the true all-in cost for financial advisors averages about 1.65%. This suggests that, for a $2.2 million portfolio, you might be paying around $33,000 in all-in fees annually. To put this into perspective, the industry average for all-in fees is around 1.65%, so your advisor's fees are in line with the industry standard.

In addition to investment management, many advisors offer financial planning services as part of their bundled AUM fee. These services can include retirement planning, tax planning, and estate planning, among others. According to Veres' research, advisors allocate nearly half of their bundled AUM fee to financial planning services. This means that, for a $2.2 million portfolio, you might be receiving around $16,500 in financial planning services annually.

As your portfolio grows, you may want to consider alternative fee structures that could provide better value. Flat fees, hourly fees, or performance-based fees could be more suitable for your situation. Flat fees typically range from $2,000 to $7,500 annually, while hourly fees can range from $200 to $400 per hour. Performance-based fees are less common but can be structured as a percentage of the portfolio's growth.

When evaluating your advisor's fee structure, it's essential to consider the additional services and value they provide. A 1% AUM fee for a $2.2 million portfolio may seem high, but it could be justified if your advisor offers comprehensive financial planning, personalized investment strategies, and ongoing support. However, it's crucial to compare your advisor's services and fees with those of other advisors and alternative investment options, such as robo-advisors or passive index funds.

In conclusion, while a 1% AUM fee for a $2.2 million portfolio may seem high, it is in line with industry standards. However, it's essential to evaluate the additional services and value your advisor provides and consider alternative fee structures that could offer better value. By doing so, you can make an informed decision about whether to stay with your current advisor or look for a better deal.