Prospective clients often ask me a straightforward question: What will I actually be paying for?
It’s a fair question, and the fact that so many people can’t answer it with confidence points to poor industry communication about fees. If you have significant assets and pay for investment management services, you deserve a clear understanding of what your fee covers and what to expect in return.
How Investment Management Fees Are Structured
The most common way financial advisors charge for their services is through an AUM (Assets Under Management) model. Your advisor charges a percentage of the total portfolio they oversee on your behalf, and that fee is typically deducted quarterly from your account.
The 2024 Kitces Research found 92% of advisors use AUM fees in some way, with 86% making them their primary revenue source. The national average fee is near 1% annually for $1 million portfolios, typically decreasing for those with $3 million or more.
That percentage may seem small, but over time, it can add up. Knowing exactly what you’re paying for is important.
What That Fee Is Actually Covering
Many families are surprised that a large portion of the AUM fee covers services beyond portfolio management.
The Kitces 2024 research found that, on average, only 59% of a client’s AUM fee is allocated to investment management, with the remaining 41% to financial planning and other advisory services. So when you pay your advisory fee, you are often paying for a broader relationship than most people realize.
At a minimum, investment management services for families with significant assets may include portfolio construction, ongoing monitoring, rebalancing, and risk management. A fuller engagement may also include retirement income planning, tax-aware investing, estate coordination, and regular reviews of your portfolio’s alignment with your life’s trajectory. Whether you are actually receiving that full scope of service is a question worth putting directly to your advisor.
What Active Portfolio Management Means for Your Family
Online investment platforms have grown rapidly and typically charge 0.20%–0.35% annually, using automated, rules-based strategies. For those with straightforward needs, this can work well.
For families with complex financial lives, active management offers what automated platforms cannot. A real person monitors your situation and makes adjustments as your life or the market changes. An active manager responds when your tax picture shifts, your business enters a new phase, or a family change requires a new strategy. Automated platforms follow rules. A good advisor follows you.
Saving a fraction of a percent in fees with a low-cost online solution may seem smart at first. However, if it ignores how assets are allocated between taxable and tax-deferred accounts, a family may pay much more in annual taxes than they save in fees. How a portfolio is managed during periods of market uncertainty can outweigh the importance of fee differences in the long run.
Questions Worth Asking Your Advisor Directly
Regardless of who manages your investments or what they charge, a few direct questions can help clarify what your relationship actually includes.
- What is my total annual cost, including advisory fees and any underlying fund expenses?
- What specific services am I receiving in return for that fee each year?
- How often will we review whether my portfolio still reflects my goals and current situation?
- If I have accounts in multiple places, who is looking at the complete picture?
That last question is common. Many families accumulate accounts and advisors without anyone coordinating the full view, and when no one is looking at everything together, gaps tend to build quietly in the background.
What Fee Transparency Should Look Like in Practice
A fiduciary financial advisor must act in your best interest and be transparent about compensation. While fiduciary status is important when choosing an advisor, it does not guarantee specific investment results.
Transparency means receiving a written fee breakdown, a clear explanation of the services included, and regular updates on performance. Some families discover too late that hidden costs erode trust; clarity is key to a strong advisory relationship.
You build your wealth by tracking where your money goes. Apply the same careful approach to your advisory relationship. If you want to discuss what investment management services could look like for you, feel free to reach out.
TL:DR Investment management services often include more than portfolio oversight, so knowing what your fee covers helps judge value. Active management provides more personal service than automated platforms, especially for families with complex finances. Asking direct questions about fees and services is a good way to start the conversation.
