I Have $2.5 Million Invested With My Financial Advisor and Pay a 1% Fee. Am I Paying Too Much?

How much should you pay a financial advisor?

There are a lot of possible answers to this question. The simple answer is: around 1%. That’s the approximate average rate that a professional financial advisor charges to manage money. The better one is: it depends entirely on what services you need and how much money you have. A financial advisor will likely charge more for comprehensive services, but the rate you pay may also fall if you have more wealth for them to manage. 

For example, say that you have $2.5 million invested with your financial advisor (known as “assets under management” or AUM). While a 1% fee would be slightly above average for a $2.5 million portfolio, the more important question to ask is whether you’re getting the right services for your money.

Use this free tool to match with fiduciary financial advisors who serve your area and compare their services and fees.

How Do Financial Advisors Charge?

The first thing to remember is that financial advisors can charge a variety of fee structures based on their underlying services. The most common options are:

• Percentage of AUM: A flat percent of the total assets under management, typically charged annually. This is typically charged for managing an investment portfolio.
• Hourly: A fixed hourly rate billed for all services, typically rounded up to the nearest six minutes. This is typically charged for specific, open-ended services such as financial consulting.
• Fixed-fee: A fee charged for individual financial services. This is typically charged for limited, closed-ended services like filing taxes.
• Commissions: Fee charged for conducting individual financial transactions like purchasing an asset or making a trade. This is increasingly uncommon.
• Performance-based: A fee or percentage charged when specific financial benchmarks are met. This is typically charged when managing an investment portfolio, and is also relatively uncommon.

It’s not uncommon for advisors to have a varied fee schedule based on the services that you select at any given time. For example, an advisor might charge a percentage to manage your investment portfolio while also charging a fixed-fee to file your taxes and an hourly rate for financial advice. This is known as fee-based services.

Many other advisors will package all services into a single overall percentage fee. In this case, you receive a range of services included in your AUM percentage fee. This is known as fee-only services. It is very important to understand whether your advisor charges on a fee-based or fee-only model, otherwise you could end up with unexpected charges.

In all cases, be cautious of advisors that charge commissions or that charge little (if any) costs to you. These are not necessarily indicators that the advisor is untrustworthy, but both can be a sign that your advisor receives payments from a third party. For example, an advisor might receive commissions from a mutual fund for each client placed in that fund. This is not illegal or suspicious per se, but does create a conflict of interest worth addressing. Make sure to discuss whether your advisor receives payments from any third parties, and be very careful about investing with an advisor that does not have a fiduciary duty to you. Consider matching with a vetted fiduciary financial advisor if you’re interested in professional guidance or a change of advisors.

For an investor with $2.5 million under management, this is the first step: What services are you getting? Given the amount of wealth here, it would be fairly common for your advisor to provide whole-picture (fee-only) financial services. If you are paying 1% on that kind of portfolio, you should probably be getting financial planning, tax advice, estate advice and other services beyond just portfolio management. 

What Is the Average Fee?

Determining the “average” financial advisor fee can be challenging because advisors use several different pricing structures. Data from the Kitces.com study “How Financial Planners Actually Do Financial Planning” ¹ provides a detailed look at how advisory firms price their services today.

For advisors who charge based on assets under management (AUM), the traditional 1% fee on invested assets remains a common benchmark. However, the research shows that advisory fees typically follow a sliding scale. Larger portfolios generally receive lower percentage fees as assets increase. Across the industry, many advisors charge roughly 0.5% to 1.25% of assets annually, with the median fee hovering close to 1% for portfolios around $1 million. The typical AUM fee for a $2 million portfolio is 0.90% and 0.75% for a $5 million portfolio, according to Kitces.

The report also shows that many firms now combine investment management with broader financial planning services rather than charging for portfolio management alone. As a result, advisors increasingly use subscription, retainer or flat-fee planning models alongside or instead of AUM fees.

According to the study, advisors who charge a standalone financial planning fee report median annual fees of roughly $3,000, although the total can vary depending on the scope of services provided. Some firms structure these fees as ongoing retainers, while others charge a one-time planning fee followed by an ongoing advisory relationship.

Hourly pricing is another option, particularly among planners who offer advice without managing client investments. The Kitces research finds that hourly planning fees commonly fall between about $200 and $400 per hour, with a median rate around $300.

In practice, the amount a client pays depends on several factors, including portfolio size, the complexity of the financial plan and whether the advisor provides investment management, tax planning, retirement planning or other services as part of the engagement.

Watch for Combined Fees

It’s important to remember that these are only the fees charged by your financial advisor. This does not necessarily reflect your total costs of investment, because you might also pay fees charged by third parties. 

This is most common if you invest in funds or other portfolio-based assets. For example, here your financial advisor charges 1% per year to manage your portfolio. Say that you also hold a mutual fund that charges a 0.8% annual management fee. That segment of your portfolio would cost 1.8% per year in combined fees. 

The same is true, as noted above, when you work with a fee-based financial advisor. In this case, your advisor might include transaction fees or other costs on top of the annual management fee. Make sure to understand the true total cost of your investments, not just the face-value annual charges, and discuss this with your advisor. 

What Do You Get for Your Money?

Here, you have $2.5 million under management. At the time of writing, a 1% advisory fee would translate to roughly $25,000 in annual management costs. While that rate is still common across the industry, clients with portfolios of this size often pay slightly less due to tiered pricing structures. According to the Kitces study, the typical AUM fee for a $2 million portfolio is closer to 0.9%. The difference may seem small, but on a $2.5 million portfolio it could amount to about $2,500 per year.

Beyond that, look at two issues: services and returns.

You have a lot of money here, so you really will want a decent range of financial services to make the most of your wealth. A good financial advisor can help you across many domains, including tax planning and preparation, long-term wealth management, retirement planning, and an overall financial strategy to help you grow and preserve this wealth.

You also want someone who can help grow your portfolio and invest your money. Basically, what kind of returns are they helping you get? And how do those returns align with your current financial needs?

Investment growth is not the only financial issue for most people. You might have other goals, such as security or long-term targets, in which case your financial advisor might provide benefits beyond the volatility of a market-exposed portfolio. SmartAsset’s proprietary valuation model suggests that there are many ways advisors add value to their clients’ bottom line, and that the benefit may average 2.39% to 2.78% annually for people with advisors, even after accounting for fees.

You’re currently paying 1% per year to manage a $2.5 million portfolio. That’s slightly high, but around average. You may be able to negotiate a lower fee with your advisor. However, the real question here is what you’re getting for your money. When it comes to financial services, you can spend much less than this and get the kind of planning and preparation that you need. If you’re happy with your investment and portfolio plan, then this looks about right. If not, then consider shopping around with SmartAsset’s free tool that matches people to vetted fiduciary financial advisors.

Frequently Asked Questions (FAQ)

Bottom Line

If you have a financial advisor, around 1% per year is the average fee for assets under management. However, make sure that you’re actually getting value for your money. Look at the plan, returns, security and services that your financial advisor provides because 1% is average, but the important question is whether it’s right for you. You can also negotiate your rate or search for a different advisor.

More Tips

• Picking the right financial advisor is like picking a doctor. This isn’t just about whether someone is open and accepting new clients, you need to connect, like and trust each other. So here are 7 tips for making sure you build a relationship with the right person. 
• 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.
• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid, meaning 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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