1 A percentage fee quietly shapes the advice

Advisors who charge on assets will tell you the incentives are aligned: we do better when you do better. There’s something to that. If my pay rises with your portfolio, I want your portfolio to grow.

But the same incentive cuts the other way, and it cuts more often than most people realize.

It discourages advice that moves money out of the portfolio. Paying off a mortgage. Buying a property. Funding a business. Making a large gift. Every one of those is sometimes the right answer — and every one of them reduces the balance an AUM advisor is paid on. Whatever the right answer is for you, an advisor paid on assets has a financial reason to prefer the one that keeps the money under management.

It encourages gathering assets that don’t need gathering. Suppose you have a $400,000 brokerage account that’s already invested sensibly — low-cost, diversified, tax-efficient. An advisor charging 1% has a $4,000-a-year reason to recommend moving it under their management, even if they’d invest it much the same way. You’d gain very little. They’d gain a great deal.

It makes some of the best advice unprofitable to give. Should you take the pension or the lump sum? Delay Social Security? Spend down savings to retire earlier? These are among the highest-value questions an advisor answers, and several of them shrink the fee base.

A flat fee doesn’t make an advisor honest. It just removes the tension.

2 The rate is disclosed. The price isn’t.

The industry presents AUM pricing as transparent, and in a narrow sense it is — the percentage is disclosed. But a percentage isn’t a price. It’s a formula.

A flat fee is stated in dollars. You know the number before you sign, and you know it in advance for the year.

With a percentage, finding out what you’ll actually pay means knowing your balance, applying the tiers, and doing the arithmetic — and the answer changes every quarter. Most people never do the calculation. They know the rate and not the cost.

On a $3 million portfolio, 1% is $30,000 a year. Written that way, it’s a number people react to. Written as “1%,” it isn’t.

And you never see it leave. Because the fee is deducted directly from your account, it never arrives as a bill. No invoice, no payment to approve, no moment where you decide it was worth it.

3 The fee grows. The work doesn’t.

This is the part that matters most, and it’s the hardest for the AUM model to answer.

If your portfolio doubles over a decade — which is roughly what a long bull market does — your percentage fee doubles with it. Over twenty years it might triple.

Is your advisor doing twice the work in year ten? Three times the work in year twenty?

Sometimes the work does grow — a business, an estate plan, more accounts to coordinate. But it rarely grows in proportion to the balance, and it never grows because the market did. A portfolio that doubles in a bull market creates no additional work at all.

That’s not an argument that the work is worth little. Good advice is worth a great deal, particularly over decades. It’s an argument that the fee should track the work, and a percentage tracks the market instead.

The usual reply is that AUM advisors discount at higher balances. Some do. But a tiered percentage still rises with your balance — it just rises more slowly. It is still, structurally, a fee that grows for reasons unconnected to what your advisor does.

Is a flat fee always cheaper?

No, and it would be dishonest to claim otherwise.

If your portfolio is small, a percentage fee may well cost you less. An advisor charging 1% on $200,000 makes $2,000 — likely less than our flat fee.

The flat fee model works in your favor as assets grow, and works against you at the smaller end. What it always does, at any size, is keep the fee disconnected from the balance — which is the point of it.

We think that’s the right trade. But you should run your own numbers.