Fee transparency shouldn’t be a luxury – it should be standard. Yet many investors discover the true cost of their wealth management only after years of hidden fees, undisclosed conflicts, and vague explanations that may have steadily eroded their returns.
The wealth management industry has built a complex web of fee structures that can often obscure the real costs. Whether it’s percentage-based fees that grow automatically with your portfolio, commission-driven product sales, or layers of hidden charges, many advisors profit from keeping fee discussions deliberately unclear.
But there’s a better way. By asking the right questions upfront, you can find an independent financial advisor who operates with complete fee transparency, eliminating conflicts of interest and providing predictable costs that align with your financial complexity – not your account balance.
The Question That Changes Everything
Most often an investor might ask “what are your fees?”. This question is very broad and leaves room for an advisor to provide a vague answer.
In our opinion, the best question is “Are you Flat-Fee and Fee-only?”
This single question cuts through industry jargon and gets to the heart of how your advisor truly gets paid. Understanding the answer can save you tens, or even hundreds, of thousands of dollars over your investing lifetime.
Understanding Fee Structures: The Critical Distinctions
When it comes to fees, there are two general groups, fee-based or fee-only:
Fee-Based: Hidden Conflicts
Fee-based indicates that in addition to the portfolio management fee, the advisor can accept commissions, kickbacks, and or revenue share on products that are provided or sold. We believe this practice is a conflict of interest and is often not disclosed properly.
Even when disclosed, these arrangements can create subtle pressure to recommend products that benefit the advisor’s bottom line rather than yours.
Fee-Only: Pure Alignment
Fee-only eliminates the commission-based aspect of providing financial advice. Fee-only allows for a variety of fee structures. The key is that it does not allow the advisor to be compensated on commission-based products.
A fee-only wealth advisor gets paid only by you, creating complete alignment between your interests and theirs.
Flat-Fee: Predictable and Fair
A flat-fee can be either fee-based or fee-only. The important difference is a flat-fee allows an individual to move away from being charged based on a % of their investments or wealth. Why should an investor with a $4m portfolio pay nearly 2x the amount of fees compared to a $2m portfolio?
This question strikes at a core problem with traditional wealth management pricing.
The Math Behind Fee Transparency
The “We Do Better When You Do Better” Tagline
The “we do better, when you do better” messaging sounds appealing, and although there is truth to it, it can also be misleading as to the value an advisor provides.
Since 1926, the total market of US equities has had positive annual returns 74.75% of the time. While this stat provides a glimpse into how markets have historically behaved from a return standpoint, it also indicates if you are paying a % fee on your portfolio, your fees are going up 74.75% of the time simply for staying invested.
Your advisor’s compensation can increase three out of every four years simply because markets tend to rise over time – not because they’re providing additional value from security selection.
The Rule of 72 Applied to Fees
Another way of thinking about fees is applying the well-known Rule of 72:
The Rule of 72 is a quick estimate of how long it will take your portfolio to double based on a specific rate of return.
Investment Return Example: 72 / 10% annual return = 7.2 years
In this example, it also means your portfolio fees, if based on a %, could roughly double every 7.2 years as well.
While your portfolio grows through market appreciation and compounding, your fees compound right alongside it under percentage-based models.
The “Pay More Because You Have More” Problem
In 2023, the national average fee on a $2m portfolio was .91% or $18,200 annually. Now compare this to the national average fee on a $5m portfolio at .84% or $42,000 annually. Does the advisor, or the firm affiliated, really add an additional $23,800 worth of value? Or do you perhaps pay more, simply because you have more?
This disparity reveals how traditional AUM or percentage fee structures profit from your success without necessarily providing proportional value.
Real-World Fee Structure Impact
A retired couple recently joined us leaving their 1% fee advisor of many years. The previous advisor spent the majority of time during reviews regurgitating the news of the week and re-selling why the company’s specific strategy was better than those of other firms.
During our introductory session, we uncovered their portfolio was more than 90% concentrated in one type of aggressive fixed income. Their distribution strategy was not optimized for tax concerns, certain accounts lacked beneficiaries potentially exposing them to probate, and they were previously sold an annuity with high fees and long surrender period.
Despite paying substantial annual fees, they weren’t receiving comprehensive wealth management that addressed their complete financial picture.
What True Fee Transparency Looks Like
A trusted wealth advisor operating with complete transparency should provide:
Clear Fee Structure
- Written explanation of all costs
- Fee-Only – no hidden fees, commissions, or undisclosed compensation
- Flat-Fee – a predictable, agreed-upon fee, not tied to portfolio size
Fiduciary Standard
- A legal and ethical duty to act in your best interest, at all times
- Conflicts of interest must be avoided; if present, they must be fully disclosed, require your informed consent, and be properly managed in your favor
- Your best interest MUST always come before that of the advisor, the advisor’s firm, or any other party, always
Comprehensive Planning Beyond Investments
- Tax planning
- Estate planning
- Insurance & risk management
- Retirement income and distribution strategies
- Career-specialization strategies for physicians, law enforcement, fire services, and educators
Our Philosophy on Fair Fee Structure
We believe the costs associated with managing your wealth should be based on the scope and complexity of your personal financial needs. The cost should be at a clear and agreed upon flat-fee, not simply based on how much you have in your accounts.
This approach ensures you pay for the value and complexity of services you receive, not simply because you’ve been successful in accumulating wealth.
The Local Wealth Management Difference:
It’s been said “a goal without a plan is just a dream”… and “a plan without action is a hallucination”.
- Our Process is Comprehensive, Collaborative, and Coordinated
- At Local Wealth Management, important choices are made the right way. We follow a comprehensive approach built around the four main phases of your financial life. We design strategies to help you create and grow wealth, protect and preserve wealth, and distribute wealth – both during your lifetime and through your legacy – in a tax-advantaged manner.
- Our focus on these four phases guides us through eight key wealth management conversations that we have found to be most impactful for our clients.
- We collaborate with you every step of the way. In some situations, there is a clear path; in others, multiple options may exist. Our role is to present thoughtful recommendations, provide alternative ideas, and guide you toward achieving your goals based on your preferences.
- We also coordinate directly with your legal, tax, and insurance professionals to put your plan into action. If you do not have a team of professionals, we are pleased to introduce you to our trusted local network.
- Guidance That Is Personalized, Unbiased, and Actionable
- Financial planning is personal. There is no one-size-fits-all approach. Each client is unique and deserves strategies tailored to their goals and preferences.
- Our clients also expect unbiased advice – free from conflicts of interest. At Local Wealth Management, we operate with complete independence. We do not accept commissions, kickbacks, revenue sharing, referral fees, or promote proprietary products. Our recommendations are always driven solely by your best interests.
- A plan is only valuable if it is actionable. While others stop at plan creation or portfolio management, we go further. Our approach addresses not only what is inside the accounts but also the broader financial decisions that shape your life.
- Advice from a Knowledgeable, Experienced, and Committed Team
- As CFP® Professionals, we hold ourselves to the highest standards of fiduciary care, integrity, and professionalism. We are committed to building meaningful client relationships where we can deliver the greatest impact.
- Local Wealth Management was founded with a focus on the goals, concerns, and preferences of the clients we have served for nearly two decades. We have guided clients through all stages of life – professional growth, retirement transitions, and legacy planning with their children and grandchildren.
- At Local Wealth, we partner with you and those you care for most to turn dreams into meaningful goals – supported by a plan that is comprehensive, collaborative, coordinated, and executed with precision.
The Path Forward
Fee transparency isn’t just about knowing what you pay – it’s about ensuring your advisor’s interests align completely with yours. A local wealth advisor operating with genuine transparency will welcome detailed fee discussions and provide clear, written explanations of all costs.
The right fee structure depends on your specific situation, but transparency should never be negotiable. Whether you choose percentage-based, flat fee, or other arrangements, you deserve to understand exactly what you’re paying and what you receive in return.
Finding an advisor who operates with complete fee transparency often means the difference between wealth preservation and wealth erosion over your retirement years.
Ready to experience true fee transparency in wealth management? Contact our office to schedule a complimentary consultation where we’ll provide complete clarity on advisory costs and discuss which approach best serves your financial goals.
Local Wealth Management
Comprehensive, transparent wealth planning
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Sources: Advisory HQ – Financial Advisor Fees Guide. Additional insights from The Wall Street Journal, Dimensional, and Kiplinger. Fee structures and investment performance can vary significantly. This article is for educational purposes and should not be considered personalized investment advice.
Disclosure
The information presented in this article is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through Local Wealth Management, LLC, an investment adviser registered with the state of Florida.