What is the right rate for wealth management? Assuming there will be a sliding fee scale, I would have $10 million in assets under management. Is that accurate? How much would I ultimately spend? (Are you seeking financial adviser? This tool can help you find a planner who will meet your needs.)
Since there are so many different types of fee structures in the financial sector, fees are not uniform for all financial advisers. However, you are correct in assuming that you would receive a sliding scale if you had $10 million in assets to invest. “A financial adviser who charges based on assets under management typically charges around a 1 percent fee yearly, however, the 1 percent management fee may fluctuate based on a person’s total amount of assets,” says certified financial planner Danielle Miura of Founder-Spark Financials. According to certified financial planner Kaleb Paddock of Ten Talents Financial Planning, a client typically pays a lower percentage for each additional million managed after the first couple of million are managed. This structure is known as a “waterfall schedule,” and it is typically applied to the first couple of million.
As for the type of waterfall schedule that would apply at various AUM breakpoints for typical RIA wealth management firms, Paddock says the following is a very typical fee schedule: Over $5 million is 0.50 percent, the first $2 million is 1.00 percent, the next $1 million is 0.90 percent, the next $1 million is 0.80 percent, and the next $1 million is 0.70 percent.
However, just because you can get one doesn’t mean you should. In fact, it might cost you $29,000 annually for managing $3 million, $44,000 annually for managing $5 million, and $69,000 annually for managing $10 million. As you can see, the fees quickly spiral out of control for no other reason than that the amount managed increased. This doesn’t necessarily mean that the client received more time, knowledge, or value, according to Paddock.
For clients with more than $1 million in assets under management, some advisors simply charge a flat fee, according to Paddock, which is frequently a better option. “Under $1 million, the 1 percent AUM fee structure can make sense if there is comprehensive tax planning, estate planning, cash flow planning, and more in addition to investment management,” says Paddock. But once they comprehend the incentives at work and that, generally, capital markets rise over time, irrespective of who manages their money, he claims that a flat price structure may work best over the million dollar threshold. Finding a financial adviser? With the help of this tool, you can find a planner who can meet your needs.)
The flat fee range for a financial adviser is between $2,000 and $10,000 per year, and fees are frequently based on the client’s needs as well as the financial adviser’s expertise and experience. “A client who needs complex business tax advice will probably pay more than one who only requires investment advice. According to Danielle Mirua, a certified financial planner with Founder-Spark Financials, “flat fee advisers typically use a sliding scale to determine their fees.”
However, it’s crucial to be fully aware of the services a flat fee adviser offers before making a decision to work with them. According to Miura, “similar to a lawyer, some advisers charge based on an hourly fee,” but since hourly fees range from $200 to $400 an hour, this structure is typically not advantageous to those who have complex financial cases.
A client would pay $20,000 annually whether they had $5 million managed or $15 million managed if it were estimated that 40 hours are worked per year at a rate of $500 per hour. According to Paddock, “the vast majority of the time, the work and expertise performed have no relationship to the size of the portfolio, and in situations where there is additional complexity, an adviser could simply adjust the hours worked estimate and adjust the flat price accordingly.” Paddock asserts that, particularly after the first one to two years of the relationship, it is highly unlikely that any one client requires more than 20 hours of actual work per year.
However, if you have a tendency to make investment decisions out of emotion, a 1% management fee might end up saving you money, according to certified financial planner Paul Henderson of Heritage Road Advisors. Of course, Henderson says, “it’s time to look for a new adviser if you’re only getting investment recommendations for a 1 percent fee.”
