Cost is only an issue in the absence of value.
But value means different things to different people. What adds value for one person may not for another, even if the service is identical. I think of value in two ways: tangible, which can be measured, and emotional, which is perceived. Both matter when it comes to money.
We make financial decisions to improve measurable outcomes like net worth, but peace of mind, simplicity, and freedom from obligation play a role too. What feels optimal depends on what you value most.
One of the more debated topics in financial planning is how advisors charge for their services. The percentage-based Assets Under Management (AUM) model tends to generate strong opinions. My goal here isn’t to defend or criticize it, but to explore how different models work, what assumptions they carry, and what they mean for long-term portfolio growth.
To do that, I built a tool.
You can find it here:
The tool allows you to compare three fee structures—AUM, flat fee, and hourly—and adjust assumptions such as portfolio size, return rate, contributions, and time horizon. It then shows how each model affects growth and how much of your ending balance represents total fees paid.
Investing today is more accessible than ever. Low-cost index funds, fractional shares, and digital platforms have removed many of the barriers that once required professional access. When index funds were introduced in 1976, they were mocked as “Bogle’s Folly.” At that time, brokers controlled access and charged accordingly. Fees were considered part of the cost of participation.
That world has changed. The value of advice now lies less in access and more in planning and behavior—decisions around taxes, asset location, risk, and withdrawal strategy. The question is whether advisor fee structures have evolved in parallel.
The AUM model remains the most common. It’s predictable for both client and advisor and creates a sense of partnership, since both benefit as the portfolio grows. It’s simple and familiar.
At the same time, some argue that the alignment between client and advisor isn’t always perfect. Portfolios invested in low-cost, diversified strategies tend to grow long term regardless of who manages them. In those cases, AUM may reward the advisor for growth that would have occurred naturally. Others see it differently, arguing that the fee compensates for guidance, accountability, and ongoing decision support—value that extends beyond performance alone.
A separate school of thought emphasizes transparency and proportionality. Flat-fee or retainer-based models separate cost from portfolio size and instead tie compensation to the services provided. These models can make costs more predictable and better reflect ongoing planning work, though they remove the simplicity of an automatic percentage withdrawal.
There isn’t one right answer. For some, convenience and partnership outweigh the long-term cost of percentage fees. For others, a flat or hourly model better aligns cost with effort and helps preserve more of their portfolio’s compounding growth. The key is awareness and alignment with personal priorities.
The Advisor Fee Impact Tool displays all three models side by side. It shows how fees accumulate, how they influence compounding, and how the effective fee rate changes over time. Small adjustments can highlight how sensitive results are to fees or time horizon.
Investing itself isn’t the hard part. The challenge is understanding which structure best supports your goals and values. Whether you prioritize simplicity, accountability, or independence, your choice of fee model should reflect what matters most to you.
Try the tool for yourself:
I often think of financial advice like personal training. A coach helps design your plan, correct your form, and keep you accountable. Some people prefer ongoing guidance, while others want a plan they can follow independently. Neither approach is right or wrong. What matters is knowing what you’re paying for, why, and whether it reflects the value you want to receive.