Are You Paying Too Much for Financial Advice? – Kiplinger’s Personal Finance

To this day, the first question industry peers ask me is, “What is your AUM (assets under management)?” They never seem interested in the quality of my advice, how my advice positively impacts my clients’ lives, or how I help my clients get married, start families, buy homes, start businesses and even retire with financial security. 

Why do assets under management matter? They are how most financial advisers get paid, and it’s been this way for decades. Most charge an “AUM-based fee” of 1% – sometimes more, sometimes less, but always tied to your overall asset level, managed by your adviser. This is what you pay them for financial planning and their investment advice, and conceptually, it makes sense – when your investments do well and your assets grow, so too does the amount of money the adviser makes. On the flip side, if the adviser loses you money, you pay less in fees.  But the reality is that win or lose, these fees are eating into your portfolio’s returns, and the truth is they are costing you a substantial amount of money.

For example, if you invested $100,000 for 30 years at an 8% annual return, you would have just over $1 million. If you paid a 1% fee, you’d have only $761,225, a sizable amount, right? Not so when you come to the realization that this 1% fee cost you $245,040  or almost 25% of your wealth.

Seeking professional advice is a good thing. When money is the No. 1 cause of stress for most Americans, and that stress materially affects their overall well-being, access to financial planning, done right, is quite literally essential to living well. But paying the wrong way for the wrong advice is a problem.

The AUM-based fee is the model of the past, not the future. New fee models are emerging, and there is only one that is best for you (as it should be): the flat fee. This fee is completely decoupled from your assets and as advisers and their clients are rapidly discovering, is by definition an approach much more in line with the fiduciary standard. 

Defining the flat, subscription-based fee

A flat, or subscription, fee is a fixed amount for ongoing, as opposed to one-time, planning and investment advice. It’s not based on how much you invest but rather on your planning needs and the complexity of your financial life as it evolves over time.

To be fair to the AUM-based model, a flat fee still costs money. You could pay from $2,000 to north of $5,000 per year, or even more, but it is tailored to meet your needs, as opposed to a more arbitrary fee that’s tied to how much money you have, like the AUM model. …….


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