When you're looking for a financial advisor, one of the most important decisions isn't about investment strategy or credentials — it's about how you'll pay for advice. The fee structure you choose can have a massive impact on your long-term wealth.
The Two Main Models
Assets Under Management (AUM) is the traditional model. You pay a percentage of your invested assets, typically 0.5% to 1.5% annually. The advisor's compensation grows as your portfolio grows.
Flat Fee is exactly what it sounds like. You pay a set amount — monthly, quarterly, or annually — regardless of how much you have invested.
Why AUM Became the Standard
AUM made sense when financial advice was primarily about investment management. Advisors needed to be compensated for the complexity and risk of managing larger portfolios.
But here's the thing: managing a $2 million portfolio isn't 4x harder than managing a $500,000 portfolio. The core work — asset allocation, rebalancing, tax-loss harvesting — is largely the same. Modern tools have made the mechanical aspects of investment management nearly identical regardless of account size.
The Math That Matters
Let's look at a real example:
Scenario: 35-year-old with $500,000, planning to retire at 65
With 1% AUM (assuming 7% annual growth):
- Year 1: $5,000 in fees
- Year 15: $13,800 in fees
- Year 30: $38,000 in fees
- Total fees paid: $450,000+
With $6,000/year flat fee:
- Every year: $6,000 in fees
- Total fees paid: $180,000
That's a difference of $270,000 — money that stays in your portfolio, compounding for your future.
When AUM Might Make Sense
To be fair, AUM isn't always the wrong choice:
- If you're just starting out with a small portfolio, AUM fees might be lower than flat fees
- Some AUM advisors offer services that justify the cost
- The "skin in the game" argument: your advisor benefits when you benefit
Why We Chose Flat Fees
At Frame, we believe our compensation shouldn't be tied to your success. We want to celebrate your wins without you wondering if we're celebrating because we're getting paid more.
Flat fees also remove conflicts of interest. We'll never hesitate to recommend paying down your mortgage or funding your business because it might reduce our fee. The right advice is always the right advice.
Making the Switch
If you're currently with an AUM advisor, switching might feel daunting. Here's what to consider:
- Calculate your current annual fees
- Compare to flat-fee alternatives
- Evaluate the services you're actually using
- Don't let switching costs prevent long-term savings
The best time to optimize your fee structure was when you started investing. The second best time is now.
Ready to see how much you could save? Schedule a call — we'll walk through the numbers together.
