Why Advisor Fees Matter More Than Ever
Small differences in how advisors charge can quietly cost investors hundreds of thousands of dollars over time. Understanding fee structures is no longer optional—it’s part of protecting your long-term wealth.
One of the most common questions we hear from potential clients is simple: How do you charge?
The answer matters more than most investors realize. Financial advisors can be paid in very different ways, and each model creates its own incentives, conflicts, and long-term costs.
In this article, we break down the four most common ways advisors charge in 2026: commission, hourly, assets under management (AUM), and flat fee—and explain what each really means for you.
How Commission-Based Financial Advisors Get Paid
This is how financial services initially started.
With commissions, you’re paying for a one-time service. You commonly see these fees today on products like life insurance policies, annuities, and potentially some mutual funds.
On mutual funds, commissions today are anywhere between about 1% and 5.75%. On annuities, commissions can often be up to 10% or more.
Pros of commissions:
If you only need advice one time, you’re typically paying a one-time commission.
Cons of commissions:
Because the commission is often built into the product, the effect on returns can last for years.
For example, let’s say you purchase an annuity. There may be a no-commission version that can earn up to a 12% return, and a commission-based version that earns closer to 9% because of built-in costs. While you might say the first year that someone helped you choose the product, over time that difference can compound into a very large gap in returns.
Another potential conflict is churning, which is when an advisor sells additional products primarily to generate more commissions.
In many cases, if you’re buying something like a life insurance policy and you just need one-time guidance, paying a commission can be fine. But it’s important to understand the conflict of interest.
One major distinction is that commission-based advisors are not necessarily fiduciaries. They are required to recommend something suitable, but they do not have to ensure it’s the best option for you or put your interests ahead of their own compensation.
Commission-based advising isn’t inherently bad. You just need to understand what you’re paying for and whether it truly aligns with your best interest.
Hourly Financial Advisors: Best for Short-Term Advice?
Hourly advisors, if they are registered investment advisors, are considered fiduciaries.
You can sit down with them to answer a specific set of questions, and they may charge anywhere from $150–$200 per hour up to $400 per hour or more.
Hourly advisors are also commonly used for specific projects, such as:
- College planning
- A one-time retirement plan
- Debt consolidation planning
However, this model does not provide ongoing advice unless you continue paying the hourly fee.
When hourly works well:
Hourly fees are best for clearly defined, short-term projects. For example, if your child is entering college and you need help planning or filling out the FAFSA, or if you have a pension decision to make and that’s the only advice you need.
If the project takes four, five, or even ten hours, you know exactly what you’re paying, and there’s no long-term engagement.
Potential downsides:
One issue is scope creep, where a project slowly expands, increasing billable hours.
Another drawback is that clients may hesitate to ask follow-up questions because every conversation is billable. That can be problematic if you need clarification on a one-time retirement or college plan.
Hourly works well for short-term needs but is usually not ideal for long-term, ongoing financial planning.
AUM Fees Explained: The 1% Cost Most Investors Overlook
One of the most common fee structures today is the assets under management (AUM) fee.
With this model, the advisor charges a percentage of your assets. A typical fee might be 1%, but it can range from about 0.5% up to 2%.
- Portfolios under $1 million often pay 1%–1.5%
- $1–$2 million portfolios typically pay around 1%–1.25%
- As portfolios approach $5 million, fees may drop to 0.85% or even 0.5%
Traditionally, AUM advisors focus primarily on investment management. Some may also provide financial planning or tax strategy, but most clients seek them mainly for portfolio management.
Pros:
The advisor benefits when your portfolio grows. You may hear the phrase, “We do better when you do better.” The advisor is incentivized to grow your investments.
Cons:
If your portfolio grows from $1.5 million to $2 million, your fee increases from $15,000 to $20,000 per year. The key question is whether the advisor is doing $5,000 more work.
In practice, this can feel like a wealth tax—paying more simply because you have more.
Another issue arises if you want to move money elsewhere. The advisor may be incentivized to discourage that decision because it reduces their income.
That said, AUM fees can still make sense in certain situations. For smaller or mid-sized portfolios, a 1% fee may be less costly than commissions over time or even a flat fee, depending on the circumstances.
Flat Fee Financial Planning: Predictable Costs, Fewer Conflicts
The flat fee model is similar to a subscription.
You pay one set fee and receive services such as financial planning, tax strategy, and investment management—all included.
A key caveat is that some firms claim to offer flat-fee planning but also charge reduced AUM fees and collect insurance commissions. Here, we’re talking about pure flat fee models.
Flat fees vary widely. Some firms charge $3,000 annually, while others providing more comprehensive services may charge $30,000, $40,000, $50,000, or even $100,000 for family-office-level services.
What matters most is the range of services included and what’s guaranteed.
Comprehensive financial planning fits naturally with a flat fee. This includes cash flow, debt, tax planning, risk management, insurance, investments, and everything that touches your financial life.
Pros:
Clarity and certainty. You know exactly what you’re paying and what services you’re receiving. For example, a $15,000 annual fee equals $1,250 per month—regardless of whether your portfolio is $1 million or $3 million.
With AUM fees, many clients can’t easily answer how much they actually paid in dollars because the fee changes with account values. Flat fees eliminate that uncertainty.
Cons:
If you only need one service, such as investment management, or if you have a smaller portfolio, a flat fee may not be cost-effective because you’re paying for services you may not use.
Flat Fee vs. AUM: A Comparison
Let’s compare two clients, each with $1.5 million portfolios and a 7% annual return over 15 years.
- Client 1: AUM fee of 1%
- Client 2: Flat fee of $15,000 (increasing 3% annually for cost of living)
After 15 years:
- AUM client paid about $349,000 in fees and ended with $3.6 million
- Flat fee client paid about $279,000 in fees and ended with $3.7 million
The difference comes from lower fees allowing more money to compound over time.
Our Flat Fee Model
Our model is a truly flat fee. Clients receive financial planning, cash flow analysis, tax planning, risk management, investment management, and estate planning—all for one fee.
Whether we manage some assets, all assets, or none, the fee doesn’t change. There are no AUM fees and no insurance commissions.
We view ourselves as our clients’ Personal Finance CEO.
Over time, we’ve seen that bankers, insurance agents, attorneys, and accountants all work in silos. The client ends up coordinating everything.
We act as the coordinator—bringing all professionals together into one cohesive plan while the client remains the decision-maker.
This model provides a family-office-style experience for mass-affluent clients, typically ranging from $1.5 million to $10 million or more.
Because we don’t get paid more for managing assets, we can provide unbiased advice across all assets, including 401(k)s, real estate, and investment properties. Our goal is simply to provide the best financial advice possible so clients are better off than when they started.
Final Thoughts
Every advisor fee model has pros and cons.
What matters most is understanding how each works, the conflicts of interest involved, and which structure aligns best with your needs.
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