How advisors get paid and choosing the right fee structure

Having navigated the intricacies of the investment advisory landscape for years, I've come to appreciate the nuanced differences in fee structures and their impact on investor outcomes. When it comes to choosing between a 1% Asset Under Management (AUM) fee advisor and one charging a 1% brokerage fee ( plus any other additional charges like onboarding and membership fees ) my experience strongly advocates for the former. Here's why.

Aligned Interests Drive Success

In my journey as an advisor, I've worked on both sides and found that nothing aligns interests more effectively than a fee structure directly tied to investment performance. The 1% AUM fee model fosters a symbiotic relationship between advisor and investor, where our compensation grows alongside the client's portfolio. This alignment cultivates a shared commitment to achieving favourable outcomes, as both parties benefit from portfolio growth.

Conversely, the alternative fee structure introduces potential conflicts of interest. When advisors charge 1% brokerage fees, on-boarding fees, and/or membership fees, they might prioritise transactions or products that yield higher commissions, rather than focusing solely on client needs. This misalignment quickly erodes trust and compromises the integrity of the advisor, often resulting in poor portfolio results and clients leaving.

Transparency Enhances Trust

Transparency is paramount in fostering trust between advisors and investors. From my experience, the simplicity of the 1% AUM fee model fosters greater transparency and clarity regarding the cost of advisory services. Clients appreciate knowing exactly what they're paying for and can easily compare fees across different advisors.

In contrast, the convoluted nature of brokerage fees, onboarding fees, and membership fees can obscure the true cost of advisory services. As an advisor, I've seen how this lack of transparency can sow doubt and hinder clients' ability to make informed decisions about their financial future.

Long-Term Value Proposition

While the 1% AUM fee may appear higher upfront compared to a flat 1% brokerage fee, my experience suggests that it offers superior long-term value. This fee structure provides comprehensive advisory services without incurring additional charges.

Over time, the bundled nature of the AUM fee proves cost-effective, particularly for clients with substantial assets or long investment horizons. Unlike brokerage fees, which can accumulate with each transaction, the AUM fee remains consistent, making it a more efficient option in the long run.

In my journey as an advisor, I've witnessed first-hand the impact of fee structures on investor outcomes. From my experience, opting for a 1% AUM fee advisor offers numerous advantages over alternative fee models. By fostering aligned interests, promoting transparency, and delivering long-term value, the AUM fee model ensures that advisors prioritize client success above all else. As investors evaluate advisory relationships, they should consider not only the cost but also the alignment of interests and the overall value proposition offered by their chosen advisor.