What is AUM?

When you invest your money with a financial advisor, your investable assets are under the management of your chosen advisor. This is known as "Assets Under Management", or AUM for short.


In this guide, we break down this concept so you fully understand how to calculate AUM fees. Investing with a financial advisor is not free, but it's probably a lot more affordable than you may realize. You don't really have to pay a fee on top of your assets under management. Instead, this percentage fee is automatically withdrawn from your account as your wealth grows throughout the year. It's almost like the percentage fee is being scraped off the top of your gains. Some advisors will take the fee on a monthly or quarterly basis, while others may opt for a different frequency of charging their AUM fee.

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Definition of AUM Fees

AUM fees, also known as asset-based fees, refer to the annual percentage fee charged by a financial advisor or wealth manager based on the total assets they are managing for a client. The fee is typically charged on a quarterly basis and calculated as follows:

((AUM Fee %) x (Average Account Value)) ÷ 4 = Quarterly AUM Fee

For example, if an advisor charges a 1% AUM fee and manages a portfolio worth $1,000,000 on average, the quarterly AUM fee would be:

0.01 x $1,000,000 ÷ 4 = $2,500

The AUM fee compensates the advisor for the ongoing management of the portfolio and advisory services provided. As the portfolio value increases over time, the total AUM fee collected also increases.

Typical AUM Fee Structures Include Breakpoints:

  • 1% of assets under management per year. This is a common fee for accounts under $1 million.
  • 0.75% of AUM for accounts between $1-5 million. As assets grow, the percentage fee often decreases.
  • 0.50% of AUM for accounts over $5 million. Larger accounts can negotiate a lower AUM fee percentage.
  • Some advisors charge a flat annual fee instead of AUM percentage. This might be $5,000/year or more.

This is just an example of AUM breakpoints and does not reflect what your advisor will charge. You can negotiate these fees with your individual advisor.

Advisors may also charge separate fees for financial planning. This can range widely: advisors may charge a flat-fee for planning, or an hourly rate.

👉 Read our guide on questions to ask your advisor in your first few meeting.

Pros and Cons of AUM Fees

Full transparency: the AUM fee reduces your net investment returns. The fee is a drag on performance, but may be justified by the value added from the advisor's services. When evaluating advisors, look for those who can add enough value to exceed the cost of their fees and maximize your after-fee returns. Ask advisors to explain how they aim to earn their fees and add value.


  • Aligns advisor incentives with client goals of growing assets
  • Fees scale up and down with portfolio value
  • Easy to calculate and built into account
  • Advisor has incentive to provide good service to keep assets


  • Fees are ongoing regardless of advisor activity
  • No incentive to recommend low-cost investments
  • Percentage fee seems small but can be large in dollar terms
  • Advisor may be incentivized to take inappropriate risks to grow AUM
  • Advisors may "churn" the account to generate more transactions/fees

How AUM Incentivizes Advisors

Advisors are incentivized to grow client assets under management because their fees increase as the assets grow. Most advisors charge AUM fees as a percentage of assets, so if the portfolio doubles in value, the advisor's fee also doubles. This motivates advisors to provide investment advice and services aimed at increasing the value of client accounts over time. The interests of advisor and client are aligned, as both benefit from growth in assets. However, clients should still pay attention to an advisor's investment strategy and performance to ensure the focus remains on prudent growth rather than taking excessive risks. Discussing an advisor's fee structure and incentives can help give clients peace of mind that their interests are being prioritized.

Comparing AUM to Other Fee Structures

Commissions and hourly rates are two other common compensation models for financial advisors, and each has pros and cons compared to the AUM fee model.

With commissions, advisors earn a percentage of the fees and costs associated with buying or selling an investment product. This can incentivize advisors to recommend transactions that may not be in a client's best interest but generate larger commissions. The AUM model aligns advisors with growing client assets.

Hourly fees compensate advisors for their time spent providing financial advice and planning. This model incentivizes advisors to deliver customized advice and spend adequate time on financial planning. However, it does not directly incentivize growing client assets like the AUM model does. Hourly fees also require clients to closely track advisor hours and can become expensive for ongoing portfolio management.

The AUM model provides advisors recurring revenue that increases as client assets grow. This incentivizes a focus on long-term asset growth rather than short-term transactions. However, clients should still evaluate if an advisor's AUM fee schedule and investment strategy are reasonable for their needs.

🟣👉 Here's our detailed breakdown on typical fee structures for financial advisors.

Hidden Costs Beyond the AUM Fee

While the AUM fee percentage is the primary cost paid to your financial advisor, there can be additional hidden costs to watch out for:

  • Underlying Fund Fees - The investments within your portfolio likely charge their own expense ratios. These fees are separate from the advisor's AUM fee and can range from 0.1% to over 1% annually depending on the types of funds used.
  • Transaction Fees - Your advisor may charge commissions or ticket charges when buying and selling investments for your portfolio. These incremental fees can add up over time.
  • Miscellaneous Account Fees - Your brokerage account provider or custodian may charge annual account maintenance fees, transfer fees, wire fees and other miscellaneous costs.
  • Advisor Expense Ratios - If invested in the advisor's proprietary mutual funds or ETFs, these may have high expense ratios that benefit the advisor.

Discuss these secondary costs with your advisor to fully understand the complete costs of their service. A 1% AUM fee could end up being closer to 1.5-2% after factoring in all additional fees.

Flat Fee vs. AUM Fee

While AUM fees are common, a flat annual fee model may be preferable in certain situations:

  • If your portfolio is relatively small (under $500k), an AUM fee of 1% could represent a large portion of your expected returns. A flat fee of $2,000 per year may cost less.
  • If you have mostly fixed income and cash holdings, paying an AUM fee on stable assets may not make sense. The advisor does not have to actively manage or trade these assets.
  • If you plan to be very hands-on and self-direct most investment decisions, paying an ongoing AUM fee for advice you won't utilize can be wasted money.
  • If you need one-time advice or financial planning for a specific goal like retirement or college savings, a flat project fee allows you to pay for customized guidance without ongoing fees.
  • If the advisor cannot clearly demonstrate how they will add value in excess of their AUM fee, opting for an hourly rate or flat fee gives you more control over costs.

The optimal fee structure ultimately depends on your unique needs and the value provided by the advisor. Assess your personal situation, advisor relationships, and portfolio management preferences when deciding if an AUM or flat fee model is more appropriate for you.

Tips on How to Negotiate Your AUM Fees

  • Consolidate accounts - Combining multiple accounts to increase your total assets under management can help you qualify for a lower AUM fee percentage. Advisors often have tiered fee schedules that decrease at higher asset thresholds.
  • Increase assets - Growing your portfolio value through additional investments or appreciation can push you over an AUM tier threshold and reduce your fee percentage. Communicate your plans to increase assets under management.
  • Negotiate fee schedule - Request a declining AUM fee schedule over time as your assets grow. AUM fees should decrease as a portfolio gets larger. Make the case for an incremental reduction.
  • Lock-in assets - Commit to keeping your assets under management with the advisor for an extended period of time in exchange for a lower AUM percentage. This provides the advisor predictable revenue.
  • Bundle household accounts - If you have multiple accounts across family members, negotiate to bundle them together to aggregate assets which may qualify for a reduced AUM fee.
  • Refer friends and family - Some advisors offer fee discounts for client referrals who also open accounts. Referring new clients can earn you a lower AUM rate.

Questions to Ask Your Financial Advisor When Negotiating

  • What is your firm's standard AUM fee schedule? Do you offer any flexibility in fee percentages for larger portfolios?
  • How do your AUM fees compare to other advisors? Are you willing to match or beat competitive offers?
  • Do you offer any fee discounts for long-term clients who reach certain asset thresholds?
  • Are there opportunities to lower my fee percentage if I consolidate multiple accounts with your firm?
  • Do you offer comprehensive financial planning services for the AUM fee or are those charged hourly as well?
  • How often do you review your client portfolios and communicate updates? Is the level of service proportional to the AUM fee?
  • What value-added services are included with your AUM fee? How do you aim to earn your fee and improve my after-fee returns?
  • Are there any additional transaction fees or commissions charged on top of the AUM percentage?
  • Can we schedule an annual review to re-evaluate the appropriateness of the AUM fee and your overall value?


Understanding AUM fees and their implications is crucial when working with a financial advisor. These fees, charged as a percentage of assets under management, are directly tied to the performance of your investments. While they align advisor incentives with client goals, they can also be a drag on net returns. It's important to evaluate the total costs, including hidden fees and the potential impact on investment returns. Alternatives like flat fees or hourly rates may be more suitable in certain scenarios. Regularly reviewing your portfolio and advisor relationship, along with careful negotiation of AUM fees, can help ensure you receive value commensurate with the costs. Always consider the full scope of services provided and the overall value an advisor brings to your financial planning and investment management.