How Financial Advisors Actually Charge For Their Services

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The way financial advisors charge for their services has evolved significantly over the years, reflecting broader shifts in client expectations, technological advancements, and the expanding scope of financial planning. While the Assets Under Management (AUM) fee model remains dominant, new pricing strategies are emerging to support more holistic, personalized advice—what some call Financial Advice 3.0. Understanding how advisors structure their fees today offers valuable insight into both industry trends and what clients can expect when seeking professional guidance.

The Dominance of AUM-Based Fees

Despite growing criticism and alternative models gaining traction, AUM-based pricing continues to be the primary method through which financial advisors charge for services. According to the 2024 Kitces Research on How Financial Advisors Actually Do Financial Planning, 86% of advisory firms use AUM as their main compensation model—up from 82% in 2022. This suggests that while the philosophy of financial advice is shifting toward comprehensive, values-driven planning, the pricing infrastructure remains anchored in asset-based benchmarks.

AUM fees are typically expressed as a percentage of a client’s managed assets, often starting around 1% for portfolios under $1 million**. However, this rate is rarely static. As portfolio size increases, fees generally decrease due to tiered pricing structures. For example, a client with a $4 million portfolio may pay only 80 basis points (0.8%)**, translating to $32,000 annually—less than double the fee of a $2 million portfolio paying 100 bps ($20,000). This reflects both economies of scale and increased complexity in managing larger, more diversified holdings.

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Breaking Down the AUM Fee: What Does It Cover?

One common misconception is that AUM fees cover only investment management. In reality, they often bundle a wide range of advisory services. On average:

This allocation varies depending on whether planning is explicitly bundled. Firms that integrate planning into their AUM fee dedicate 46% of the charge to planning-related services, compared to just 27% in firms that keep planning unbundled.

This shift underscores a critical evolution: AUM fees are no longer just about managing money—they’re funding proactive, ongoing advice that includes tax optimization, estate planning, behavioral coaching, and life-goal alignment.

Common AUM Fee Structures

Advisory firms use three primary models to calculate AUM fees:

1. Graduated (Tiered) Structure

Fees are calculated using different rates across asset tiers. For example:

2. Cliff Structure

Once assets cross a threshold, the lower rate applies to the entire portfolio. For instance, crossing $1M might drop the rate from 1.0% to 0.8% across all assets.

3. Flat Structure

A single rate applies regardless of portfolio size—rare and typically used for simplicity in smaller firms.

Among these, graduated structures are most popular, used by 58% of firms, because they balance fairness and scalability. Interestingly, cliff structures correlate with higher fee confidence and a tighter niche focus—suggesting advisors using them feel more justified in charging premium rates.

Bundled vs. Unbundled Pricing: Two Sides of the Same Coin

The debate between bundled and unbundled fees centers on transparency versus simplicity.

Despite structural differences, total fees tend to be nearly identical across both models. Consider this example:

Two advisors serve clients with $1M portfolios:

  • Advisor A (bundled): Charges 1% AUM = $10,000 total.
  • Advisor B (unbundled): Charges 0.6% AUM ($6,000) + $1,000 retainer + $3,000 planning fee = $10,000 total.

Both deliver similar value but communicate it differently. Bundling simplifies billing; unbundling highlights service diversity and can justify higher total fees—especially among advisors with strong fee confidence.

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The Rise of Multiple Charging Methods

Flexibility is key in modern advisory practices. 72% of firms use more than one pricing method, combining AUM with hourly, retainer, or project-based fees. This allows them to:

Notably, only 17% of firms consistently charge separate fees for planning and investment management, indicating that multi-method pricing is often strategic rather than routine.

Minimum Asset Requirements: Flexible in Practice

About 66% of AUM-based firms have minimum asset requirements, typically ranging from $500K to $1M+. Yet enforcement is rare—90% of firms waive these minimums occasionally or regularly, often to build relationships with high-potential clients early in their wealth journey.

While this flexibility supports client acquisition, firms must ensure they aren’t sacrificing long-term profitability. Waiving minimums without alternative revenue streams can create gaps in coverage during early client years.

FAQ: Understanding Financial Advisor Fees

What is an AUM fee?

An Assets Under Management (AUM) fee is a percentage-based charge applied to the total value of assets an advisor manages for a client. It's commonly used by financial advisors and typically ranges from 0.3% to 1.0%, decreasing as portfolio size increases.

Do all financial advisors charge AUM fees?

No. While 86% use AUM as their primary model, many combine it with hourly rates, flat retainers, or project-based fees—especially when serving clients with lower asset levels or specific planning needs.

Why do AUM fees decrease as portfolios grow?

Larger portfolios often benefit from tiered pricing structures that reduce the effective rate. This acknowledges economies of scale while accounting for greater complexity in managing diverse holdings.

Is unbundling fees better for clients?

It depends. Unbundling increases transparency and lets clients pay only for needed services. However, it can also lead to higher total costs if advisors don’t reduce AUM fees proportionally when adding separate charges.

Are there hidden costs beyond advisory fees?

Yes. Clients also pay expense ratios on underlying funds (averaging 0.36% in 2023) and potential platform fees. RIAs typically offer lower all-in costs than broker/dealers due to reduced compliance overhead.

Can I negotiate an advisor’s fee structure?

Absolutely. Many advisors are open to customization, especially for high-potential clients or those bringing complex needs. Discussing fee options upfront ensures alignment with your financial goals.

The Future of Financial Planning Fees

As financial advice becomes more comprehensive—focusing on emotional well-being, life satisfaction, and long-term values—fee structures must evolve accordingly. The rise of cash management, active-passive hybrid strategies, and even cryptocurrency investments (now recommended by 4.8% of firms) signals a broader shift toward personalized service delivery.

At the same time, declining fund expense ratios and increasing regulatory costs create pressure on firm margins. To remain sustainable, advisory businesses will need to:

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Final Thoughts: Aligning Fees With Value

The way financial advisors charge reflects not just business models but evolving definitions of value. As the industry moves beyond transactional relationships into deeper, ongoing partnerships, fee structures must keep pace—not just in mechanics, but in communication and transparency.

Whether through graduated AUM schedules, hybrid pricing models, or unbundled services, the goal remains the same: delivering meaningful advice that justifies its cost. For clients, understanding these models empowers smarter decisions. For advisors, refining pricing is an opportunity to redefine how they deliver—and demonstrate—value in the era of Financial Advice 3.0.

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