“How do you get paid, and how much does it cost?”

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It’s a simple question, but many investors don’t ask it. Fees often go unnoticed, buried in statements or obscured by jargon. But understanding what you’re paying—and how your advisor is compensated—can have a lasting impact on your financial future.

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​This guide helps you assess the full cost of investing—from advisory fees to fund expenses—so you can make informed, confident decisions.

 

If you’re not sure how your advisor is paid, or what services you’re getting in return, it’s worth asking. Clear answers should be the baseline.

 

Costs are one of the few things in investing you can control. And despite the myth that higher fees equal better results, the data tells a different story: lower costs tend to lead to better long-term outcomes.

 

Two Layers of Cost: What You Actually Pay

When working with a financial advisor, there are two distinct levels of cost:

 

1. Advisor Fees - What you pay the professional directly.

2. Investment Fees - The internal costs of the funds or ETFs inside your portfolio.

 

Understanding and managing both is essential to maximizing long-term wealth.

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Level 1 Advisor Fees - How your advisor is paid:

Most advisors charge in one of three ways:

 

• Transaction Commissions: Fees earned when buying or selling investments​​

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• AUM Fees (Assets Under Management): A percentage of assets under management, typically around 1%.​

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• Flat Fees: A clear, fixed-dollar amount for services and advice (this can sometimes also be hourly).

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While AUM models dominate the industry, flat fees models are used by less than 30% of advisors. 

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The Problem with Commissions

Commission-based models often introduce conflicts of interest. Advisors are incentivized to sell—not necessarily to advise. These commissions are often buried in product costs, especially with mutual funds, annuities, or insurance products.

 

If you hear terms like “load,” “trail,” or “deferred sales charge,” press for details, or consider walking away altogether.

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AUM Fees: More Transparent, But Still Misaligned

AUM-based fees charge a percentage of your portfolio’s value, whether or not your advisor does more work. For example, a $2 million portfolio with a 1% AUM fee means paying $20,000 annually.

 

This model has several key drawbacks:

 

• Wealth Tax Effect – As your portfolio grows, so do your fees—even if your advisor’s workload doesn’t.

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• Drag on Compounding – Net returns are reduced by that percentage year over year in both up and down markets, which can impact the long term compounding of your wealth.

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• Asset Gathering  – AUM advisors may push to manage all your assets, even when other strategies may be better for you.

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It can also be a bit confusing to assess different variations. (See detailed examples at the end of this section.) 

 

• ​Blended % AUM Fee Structure (Like Tax Brackets): In a blended AUM structure, your portfolio is split into tiers, and each tier is charged a different rate. The total fee is the sum across tiers, not a flat rate on the full portfolio. 

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• Flat % Tiered AUM Fee Structure: The entire portfolio is charged one rate based on which tier it falls into.​​

 

The Flat-Fee Advantage

Flat fees offer a fixed, transparent price for advice, independent of portfolio size. That simplicity has real advantages:

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• Clear Costs: You know exactly what you’re paying, no sliding scales or hidden expenses.​

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• No FeeTax on Growth: Your investments grow without being shaved down by percentage-based fees.​

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• Aligned Incentives: A flat-fee advisor is compensated for their advice and service, not for gathering assets or pushing products.

 

If you're a high-net-worth investor focused on minimizing drag and maximizing alignment, a flat-fee model is often the best fit.

 

Want to see the difference? Use our fee comparison tool to run the numbers.

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