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An advisor fee of 0.75% of assets under management (AUM) is within the range that many advisors charge, but whether it’s worth the cost depends on the value you receive. As you evaluate your advisor, consider more than investment returns. Compare your portfolio’s performance with an appropriate benchmark while taking your investment objectives and risk tolerance into account. Think about whether your advisor communicates in a way that meets your expectations, keeps you informed about relevant tax and market developments, and provides guidance as your financial situation changes. It’s also worth considering whether their overall approach fits your needs, as some advisors focus primarily on investment management while others emphasize comprehensive financial planning.
If you’re considering a change, SmartAsset’s free matching tool can help you connect with fiduciary financial advisors and compare your options.
Evaluating Financial Advisors
There is more to assessing a financial advisor than comparing cost with performance. Your relationship with your advisor encompasses a range of services and features, including how well and how often the advisor communicates, whether you feel your risk preferences are being adequately accounted for and how much of the investment management job you want to handle yourself. Here are some things to keep in mind:
Fees
While fees aren’t always the most important consideration, they definitely represent a significant factor. And, since that’s the initial concern you expressed, it makes sense to address them first. With that in mind, an annual fee of 0.75% of assets under management (AUM) is about in the middle of what you can expect to pay. Robo-advisors, often the least costly among financial advisor options, may charge 0.25% to 0.5%. A financial advisor may charge up to 2%, but for accounts of the size you are talking about 1% is more typical. Financial advisors generally offer a wide expanse of services beyond investment advice, including retirement account strategies, estate planning, tax planning and more.
Performance
Another question is whether you are getting your money’s worth. One way to look at this is to determine whether the portfolio performance is meeting your expectations. You can evaluate performance by comparing your portfolio’s return to a suitable benchmark. The concept of suitability is important. You’ll want to compare the portfolio’s annual return with a benchmark that fits your investment style. If you’re neither particularly conservative nor particularly aggressive, the return on the S&P 500 might be a good one for you. A suitable financial advisor can help you determine your risk profile based on your goals and preferences.
An advisor’s value isn’t measured by investment performance alone. They may also help improve long-term outcomes through tax planning, retirement income strategies, account selection and the timing of major financial decisions. Keeping your financial plan up to date as tax laws and regulations change can also make a meaningful difference over time. Because every investor’s goals and circumstances are different, the ways an advisor adds value will vary from one client to the next.
Communication
Good returns are important, but so is the communication with your advisor. Communication preferences can largely be a matter of individual inclination. Some people want frequent updates, while others prefer to be contacted only once or twice a year or if there is some unusual event, such as a significantly down market that calls for a consultation. At the least, you are likely to want to hear from your advisor around tax return filing season and at the end of the year, when tax-loss harvesting and rebalancing are likely to be on the agenda. But many good advisors check in more frequently with their clients, to see if there are changes in their circumstances or goals, or to keep them apprised of any changes on the legislative or technology end of personal finance.
Fit
A less hard-and-fast metric is how well you fit with your advisor. Part of this is purely personal and depends on the level of confidence and comfort you have with the way your advisor talks to you and treats you. You may also want to examine more objective measures, such as whether the advisor’s particular style fits your own. For example, if you would prefer to buy and hold investments without much buying and selling, then frequent suggestions from your advisor to consider trading opportunities might signal a poor fit.
Need a financial advisor or want to interview new ones? SmartAsset can match you with vetted fiduciary advisors.
Advisor Assessment Example
An advisor fee of 0.75% applied to a $2 million portfolio comes to $15,000 annually. Whether that’s a good deal depends heavily on what you’re actually getting for it, both in performance and in the less tangible services layered around it. Here are two scenarios that show very different outcomes for the same fee.
Scenario 1: Strong Value
Your $2 million portfolio, roughly 70% stocks and 30% bonds based on your moderate risk tolerance, returned 9% this year, or $180,000 in gains. A blended benchmark matching that same allocation returned 7.5%, or $150,000. Your advisor outperformed the benchmark by $30,000, more than covering the $15,000 fee twice over.
Beyond the numbers, your advisor also walked you through a Roth conversion strategy during a market dip earlier in the year, timed to keep you in a lower tax bracket, an estimated tax savings of $8,000 over doing nothing. They reached out proactively after a change in your income, adjusted your withdrawal strategy accordingly, and send quarterly updates you find genuinely useful. In this scenario, the $15,000 fee is buying real, quantifiable value on top of solid investment performance.
Scenario 2: Weak Value
Your $2 million portfolio, same 70/30 allocation, returned 6% this year, or $120,000 in gains. The same blended benchmark returned 7.5%, or $150,000. Your advisor underperformed the benchmark by $30,000, meaning you paid $15,000 for a portfolio that would have done better with a simple, low-cost index fund mix and no active management at all.
On top of that, communication has been sparse. You haven’t heard from your advisor outside of a generic year-end statement, no proactive tax planning, no check-ins after a major life change last year, and no adjustments to your plan despite new tax legislation that could have affected your strategy. In this scenario, the fee isn’t just failing to add value through performance, it’s also not being offset by service quality elsewhere.
| Metric | Scenario 1: Strong Advisor Value | Scenario 2: Weak Advisor Value |
| Portfolio size | $2,000,000 | $2,000,000 |
| Asset allocation | 70% stocks / 30% bonds | 70% stocks / 30% bonds |
| Annual advisor fee | $15,000 (0.75%) | $15,000 (0.75%) |
| Portfolio return | 9% ($180,000) | 6% ($120,000) |
| Benchmark return | 7.5% ($150,000) | 7.5% ($150,000) |
| Performance relative to benchmark | +$30,000 | -$30,000 |
| Estimated tax-planning value | About $8,000 from Roth conversion timing | None identified |
| Client communication | Quarterly reviews and life-event check-ins | Year-end statement only |
| Overall assessment | Fee may be justified by performance and tax planning | Fee may not be justified by the services provided |
What the Comparison Shows
The same fee, the same portfolio size, and even the same starting allocation can represent very different value depending on both performance relative to benchmark and the quality of everything happening around the investment management itself. Scenario 1 justifies the fee twice over, once through outperformance, once through tax and planning value. Scenario 2 fails to justify the fee on either front, which is the exact situation worth revisiting with your advisor, or considering matching with new candidates through a tool like SmartAsset’s.
Bottom Line
You can evaluate your financial advisor by comparing fees charged by other advisors, investment performance versus benchmarks, how well communication practices fit your requirements and other factors. When it comes to fees, larger portfolios usually pay smaller percentages. Select benchmarks with an eye to matching your risk profile. Communication frequency may be mostly a matter of personal preference, but at least occasional contacts from your advisor are probably essential.
“You should evaluate the fee you pay an advisor in terms of the value you receive. That’s about more than investment returns, but includes planning and communication as well,” said Brandon Renfro, CFP®.
Brandon Renfro, CFP®, RICP, EA provided the quote used in this article. Please note that Brandon 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.
Investment Planning Tips
- 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.
- SmartAsset’s investment calculator can tell you how much your portfolio will be worth in the future given your starting point and estimated annual returns.
- Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
- Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
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