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When it comes to advisor fees, there are two numbers to keep in mind: 1% and 0.02%. The first is the average fee that financial advisors tend to charge. If you are looking for comprehensive financial management, in general you should expect to pay about 1%. The second is a representative fee for a well-indexed S&P 500 fund. If you are only looking for investment management, someone to grow your portfolio, this is the number they need to compete with.
If you’re interested in exploring how a financial advisor can help you, you can speak to a fiduciary advisor for free.
How Are Advisor Fees Structured?
Financial advisors can charge for their services in several different ways, and understanding these fee models is key to knowing whether you’re paying a fair price. The most common approach, especially among traditional advisors, is the assets under management (AUM) model, where you pay a percentage of your invested assets each year. For example, a 1% annual fee on $2.2 million means you’d pay about $22,000 per year, typically deducted directly from your account.
Some advisors use a flat fee or retainer model, charging a set amount each year or quarter for ongoing financial planning and investment management. Others bill by the hour, similar to an attorney or consultant, which can be more cost-effective for clients who only need occasional advice. These alternatives can help investors with large portfolios avoid paying rising fees as their assets grow.
In contrast, some advisors, especially brokers or insurance representatives, earn commissions when they sell investment products like mutual funds or annuities. While this structure can seem less costly upfront for investors, it can create potential conflicts of interest if advisors are incentivized to recommend certain products over others.
A growing number of professionals now use hybrid models, combining AUM fees with flat or hourly charges, or offer “fee-only” services where all compensation comes directly from the client rather than product sales. Fee-only advisors are often preferred for their transparency and fiduciary obligation to act solely in your best interest.
Ultimately, advisor fees are at the discretion of the advisor, their firm and you. You and your advisor should get an understanding of your goals and personal circumstances, and then you can negotiate the fee structure. If you’re thinking about using a financial advisor, you can speak to one for free.
What Should You Pay?
So how much should you pay for financial services? Specifically, is a 1% management fee too high for someone with more than $2 million on deposit? Well… it depends.
The simple answer to this question is, more or less, no. Given the size of this account, you might be able to shop around for a discount. But in general, a 1% management fee is right in line with market averages. Typical financial advisors might charge between about 0.5% and 2%, so 1% is not unusual.
The more complicated issue is, are you getting your money’s worth? As the SEC notes on this subject, management fees might sound small, but they can add up quickly over time. To put this in perspective, say that you put your $2.2 million into a fund with an average return of around 8%. Over 10 years, with a 1% AUM, you would pay about $250,000 total over time in management fees.
It’s possible that this fee may end up paying for itself with active portfolio management if your advisor can outperform the market. By contrast, you could buy an S&P 500 index fund, which tracks the performance of 500 large U.S. companies and does not require active management. Because no one is selecting individual investments on your behalf, the fees are significantly lower, often around 0.02% per year. The benefit is that it is cheaper. The disadvantage is that you may be missing out on professional insight and management that could benefit your portfolio and beyond.
If your financial advisor is simply following your instructions and not actively managing your portfolio in an effort to increase returns, then you may decide your 1% fee isn’t really worth it, especially if you’re capable of placing trades on your own. However, a good financial planner isn’t solely limited to investment management, depending on the scope of your agreement, and they can be providing value elsewhere.
Look at the other services your financial advisor offers. Do they help with long term planning? Are they giving you advice to build both general and targeted wealth? Do they offer tax services, estate planning and other advice? Basically, do they offer something beyond placing trades and following your instructions? A strategic advisor who coordinates your full financial picture is worth more than someone who simply executes transactions on your behalf.
This is the critical issue when it comes to whether your 1% fee is too high. Fee differences very rarely lead to better portfolio returns, since it’s quite rare for professionals to ever beat the market. So instead, look at what you want out of this relationship in total. If you feel like you have received sound advice across a broad range of financial planning and services, then this sounds like a strong professional relationship at a fair price.
How Breakpoints and Alternatives Apply at $2 Million or More
Once your portfolio reaches the $2 million range, advisor pricing often changes, even if the headline fee does not. Many firms use breakpoints that lower the percentage charged as assets increase, rather than applying a flat 1% to the entire balance. At this level, paying a single rate on all assets is not the only structure in the market.
Breakpoints typically work by tier. An advisor might charge 1% on the first portion of assets, then reduce the rate on additional balances. For example, part of your portfolio could be billed at 1%, the next tier at 0.75% and amounts above that at an even lower rate. Whether your advisor offers this depends on firm policy, not portfolio performance.
Small percentage differences translate into meaningful dollars at higher balances. Most advisory firms use a graduated fee structure with four tiers, where the rate decreases as assets grow. A common schedule might look like this:
- First $1 million: 1.00% to 1.25%
- $1 million to $2 million: 0.75% to 0.85%
- $2 million to $5 million: 0.50% to 0.65%
- Above $5 million: 0.35% to 0.50%
On a $2.2 million portfolio, the difference between a flat 1% fee and a blended graduated rate of 0.75% is about $5,500 per year. Over time, those savings remain invested and compound, which makes fee structure a long-term planning issue rather than a minor cost detail.
This asset level also opens the door to alternatives outside the traditional AUM model. Some investors separate financial planning from investment management, paying a flat annual fee for planning while using lower-cost investment vehicles. Others use hybrid models that combine a reduced AUM fee with a retainer for planning services.
Deciding whether to negotiate or switch depends on how flexible your advisor’s pricing is. Some firms apply firmwide pricing schedules and do not adjust fees, while others review pricing as assets grow or responsibilities change. Asking how fees scale with assets is a practical step once your portfolio reaches this size.
The key issue is leverage. With more than $2 million invested, you have more pricing options than smaller investors, and the cost of inaction increases. Understanding how breakpoints and alternatives affect long-term outcomes helps you evaluate whether a flat 1% fee still fits your situation.
What Services Do Financial Advisors Provide?
A financial advisor is someone who helps you manage your money and other assets. Among other services, a financial advisor can help clients with:
- Investment or portfolio management
- Long-term financial planning
- Tax advice and planning
- Budgeting and financial goals
The exact nature of your relationship with a financial advisor will depend on their services and your needs. For example, some may work literally only in an advisor capacity. In this case, the financial advisor will not help you with any actual transactions, but will only give advice about what you should do.
Other advisors may work on a more comprehensive basis. They may offer accounting services and tax planning, say. Or they may offer portfolio and asset management, holding your money and making investment decisions on your behalf.
When you seek out a financial advisor, it’s important to look for someone who fits your needs. You don’t want to pay for unnecessary services; for example, most households have simple taxes and may not need extensive tax planning. On the other hand, you don’t want a relationship that doesn’t achieve all of your goals either.
Bottom Line
A 1% advisor fee can be reasonable depending on the services provided. If your advisor offers comprehensive planning, tax strategies, estate guidance and ongoing portfolio management, that fee may be justified. But with $2.2 million invested, even small percentage differences add up quickly, so it is worth comparing what you pay against what you receive. Fees are only part of the equation though. Some of the value an advisor provides is harder to put a number on.
“One hidden benefit of investment advisors is their ability to act as a trusted gatekeeper of your money. If you get spooked by a market downturn, for example, they can ensure you’ve considered all your options before rushing to a decision that could hurt your long-term portfolio growth. They can also flag potential opportunities in such a downturn. They can act as a braintrust, offering peace of mind along the way,” said Tanza Loudenback, CFP®.
Tanza Loudenback, Certified Financial Planner™ (CFP®), provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.
Tips on Finding a Great 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, and 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.
- One of the biggest problems with all professional services, from law and medicine to finance, is figuring out what even makes someone good at their job. After all, how can you know if someone is a good financial advisor until after you’ve already given them all your money? Here’s how.
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