I Have $3 Million Invested With My Financial Advisor and Pay a 1% Fee. Am I Paying Too Much?

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“Financial advisor” covers a wide range of services, ranging from simple counsel and budgeting to tax preparation, long-term planning and portfolio management. What you pay, and how much, will depend on the services you engage and the kind of firm you hire.

You’ll generally pay less for smaller and more discrete services. For example, a financial advisor might charge a modest one-time fee to prepare and file your taxes.

For larger or ongoing services, you’ll likely pay more. For example, it’s common to charge a percentage of total assets under management for managing your portfolio. If your financial advisor manages your investments and money, 1% per year is a common fee, with many advisors often charging a lower percentage to manage larger portfolios.

For example, say you have $3 million in assets under management. You may be likely to pay a 1% annual fee, although you could shop around for a better price. Here’s what to know consider when comparing financial advisor fees.

Remember, when choosing a financial advisor, price isn’t the only factor to compare. Consider how a financial advisor’s skills and expertise align with your needs and goals.

Financial advisor fees are largely based on the services they provide. Advisors generally rely on five different fee structures:

Hourly: A fixed hourly rate that the advisor bills for their services, agreed upon in advance. Hourly rates are typically charged for specific, but open-ended, services like financial planning.

Fixed-Fee: A set, one-time fee that the advisor charges. This fee can be paid either in advance or upon completion of the project. Fixed fees are typically charged for specific tasks such as tax preparation.

Percentage: A flat percent of the total assets under management (AUM) that the financial advisor holds and manages on your behalf. This is typically charged for managing an investment portfolio or properties.

Commissions: A fee charged for conducting a financial transaction, such as when the advisor buys or sells assets, or when they invest in a specific product.

Performance: A specific payment, fee or percentage paid to the advisor when they meet certain performance benchmarks. For example, an advisor might get an additional 0.25 percentage points of AUM if they reach a certain rate of return on investments.

Of these fee structures, the most common are hourly, fixed and percentage. Performance-based fees are uncommon, especially for retail-level investors. When applicable, a performance-based fee can be a good way to align your interests with the financial advisor’s. However, given that percentage fees essentially serve the same function, consider if performance-based fees are even necessary in your relationship with your advisor.

Commission-based fees are also less common, and can raise a concern over conflicts of interest. When a financial advisor receives a per-transaction commission, there is risk of financial motivation to conduct transactions regardless of your portfolio’s underlying position. In other cases, a financial advisor can receive commissions from a third party based on their client investments.

For example, it’s not uncommon for mutual funds to pay a commission to financial advisors who invest their clients’ money in the fund. While neither of these practices is inherently invidious, it can be a good idea to be careful about investing with someone who has third-party financial motives. Whenever possible, it’s often advisable to invest with a financial advisor who has a fiduciary duty on your behalf, as this makes them legally obligated to act in your best interests, rather than their own.

If you’re interested in finding a financial advisor who acts as a fiduciary, you could try using our free matching tool.

Most financial advisors can provide a range of services to their clients. Some of these advisors will charge a single percentage fee that covers all of their services. This is known as a fee-only model.

Other advisors will apply different fees and structures based on the services they provide. For example, an advisor might charge a flat rate to file taxes, an hourly rate for financial consulting, and a percentage fee for portfolio management. This is known as a fee-based model.

When you consider a financial advisor, or review your existing relationship with your financial advisor, the following questions give you a place to start:

What is their fee structure?
What services do they provide for those fees?
Do they take commissions from you or a third party?
And do they have a fiduciary duty to you?

From there, consider whether you’re paying the right amount.

Average fees can vary based on the services you’re looking for and the nature of the firm you retain. For example, a small firm will typically charge less than a larger firm. And a financial advisor will likely charge less to prepare a simple 1040 than they would to prepare the line-item taxes of a wealthy trust. So, take any averages with a grain of salt. However, here are some of the average ranges you can expend to pay for certain fee schedules and types of services:

Flat-fee services: Most advisors charge between $1,000 and $3,000 for retail-level flat-fee services. This is the price you might pay, for example, to make a comprehensive financial plan for an ordinary household, or to file complicated taxes for a middle-class family. Standard rates may start between $7,500 and $50,000 for high-end financial services. This is the rate that you might expect to pay, for example, to make a financial plan or tax strategy for a wealthy household with significant assets.
Hourly-fee services: Many advisors charge between $150 and $300 per hour for hourly-fee services. This is the price that you might pay, for example, for financial consulting services, complicated tax preparation or to make an overall tax management strategy. However, hourly fees tend to be particularly elastic. Clients should expect to pay significantly more if they retain larger or more experienced firms, which can often charge between $800 and $1,200 per hour for high-end services.
Percentage-fee services: Most advisors charge around 1% of assets under management for percentage-fee services. A percentage-fee means that your financial advisor withdraws that amount from your portfolio at the end of each billing period. For example, say that your financial advisor charges 1%, billed annually, and you have $100,000 in your portfolio. This means that at the end of the year, they will take a cut of $1,000 ($100,000 * 0.01) from your portfolio.

Other advisors might bill on a quarterly or biannual basis, in which case they would divide an annual fee over the billing cycle. For example, say that your advisor charges a 1% annual fee billed quarterly. This means that at the end of each quarter, your advisor will bill you 0.25% of the total value of your portfolio.

The standard range for percentage fees is between 0.5% and 2.0%. The average fee structure is 1%. You’ll likely only pay more than this in the case of specialty services. Advisors typically charge a lower percentage to manage high-value accounts. For portfolios worth more than $1 million, average percentage-fees are around 0.75% per year.

Here, for example, you have $3 million under management. If you’re paying 1% in annual fees, then we can look at this from two perspectives:

This rate is about the average. You aren’t paying significantly above the standard market rate for these services.
This rate, however, is somewhat high for the value of your portfolio. With $3 million under management, you can probably find someone who will charge you closer to 0.75% per year.

For discrete services, the value of a financial advisor is relatively clear. If you hire someone to do your taxes, then you get filed taxes. If you hire someone to prepare a financial plan, then you get a budget and saving strategy. When you hire someone to manage your money, though, what do you get for that percentage?

SmartAsset’s white paper studying the value of a financial advisor claims: “[T]he impact of most advice can be traced to the client’s bottom line in one of two ways: Through additional investment gains or tax savings. At the same time, a continuous relationship between client and advisor is necessary to maximize the dollar benefit in each of these areas due to the ongoing and volatile influence of both behavioral and technical factors.”

In other words, ongoing advice and portfolio management generally offer three benefits.

Increased returns on your capital over what you could have earned on your own.
Increased savings due to tax strategies compared with what you could have saved on your own.
Better ongoing results in both of these categories compared with what you could have generated on your own.

From a data standpoint, though, evaluating this can be difficult, because how exactly are you supposed to know this information? How can you know what a financial advisor would have generated if you hired one? How can you know the returns you would have generated?

It’s tough to pin down for any one person since everyone’s financial circumstances are so different. But the whitepaper aims to estimate based on common assumptions, and compare these projections to the projected advisor fees in that same scenario. In these projections, fees work out to just a portion of the total value generated from the relationship. For example, for a representative 45-year-old client (a profile selected to represent investors midway through their career and retirement savings) “the advisor’s lifetime share… works out to around 24% to 32% of the total [additional] value generated.”

Consider how a financial advisor might contribute to your own financial plans. In addition to yields, consider what else you need from your advisor. Do they offer overall financial planning, saving and budgeting strategies? Do they offer tax planning and preparation? How many of these services do you need, and what are they worth to you?

Compare what you need against what you’ll pay to decide if you’re getting a good value.

On average, a financial advisor will charge you 1% per year to manage your portfolio. Households with more than $1 million in assets under management should generally expect to pay closer to 0.75%. From there, the question is what value you’re getting for this money.

How can you pick the right financial advisor for you? How can you know if someone will provide the right services? How do you know if they’re particularly good at managing high-risk portfolios, or seeking out safe-haven investments? How can you understand if they are providing the right set of services for your needs? Start with our guide on how to find and choose a financial advisor.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid – in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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