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Choosing an appropriate fee structure as a fee-only financial advisor is one of the hardest parts of the business. Especially when clients can have such unique needs, it can be difficult to charge appropriately without knowing ahead of time the level of service someone is going to require.

This is (partly) why I have chosen to take the route of charging a flat fee based on what my time and expertise is (currently) worth. Let me be clear — I do not care how much other financial advisors charge their clients, as long as they are transparent about what their time and services are worth. If a client is willing to pay $3,000 a quarter for your services — great that’s called free market capitalism.

However, I don’t believe the standard 1% assets under management (aum) fee is an equitable way of charging fees. It also still leaves potential conflicts of interest open, even for the fee-only financial advisor.

I think any advisor that’s honest with themselves would admit, there’s incremental (if any) additional work required to manage a $500,000 portfolio vs. a $5,000,000 portfolio. So why should we be entitled to a 10x fee ($5,000 vs. $50,000 annually), when we’re not doing 10x the work?

With the increased efficiencies that technology has provided the financial advisory community, there is no reason someone cannot create a profitable practice (IMO) charging an appropriate $5,000 annual fee regardless of assets under management (for example). Again, if your time and expertise is worth more — charge more.

Since I tend to work with high earning young professionals, I can also tell you that the next-gen of consumers are not going to sit back and pay 1% on a million dollar portfolio to meet with someone once a year. In my (brief) experience, the next-gen of investors I’ve worked with are considerably more informed compared to previous generations that are used to “doing business” a certain way.

This has led them to demand a higher level of transparency and service that aligns with an appropriate value proposition.

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