Exploring the controversy and considerations around asset-based advisory fees

  • The AUM model, which charges a flat 1% fee based on assets under management, is controversial
  • Some argue that financial advisers should charge on an hourly or per-project basis instead
  • AUM fees can increase as the value of investments grow
  • A true fiduciary adviser compensation should not be tied to market performance
  • The industry’s traditional model of annual meetings and 1% fees is becoming outdated
  • Smaller portfolios may have difficulty finding AUM-based advisers
  • The value delivered by an adviser should be considered when evaluating the fee
  • Asset-based advisory fees can be appropriate for clients with complex finances
  • Hourly fees may discourage clients from seeking advice
  • There is no one-size-fits-all answer, and the choice depends on individual circumstances

The AUM model, which charges a flat 1% fee based on assets under management, has sparked controversy. Some argue that financial advisers should charge on an hourly or per-project basis instead. AUM fees can increase as the value of investments grow, leading to concerns about the fairness of the model. A true fiduciary adviser compensation should not be tied to market performance. The industry’s traditional model of annual meetings and 1% fees is becoming outdated. Smaller portfolios may have difficulty finding AUM-based advisers. When evaluating the fee, it’s important to consider the value delivered by the adviser. Asset-based advisory fees can be appropriate for clients with complex finances, as hourly fees can add up quickly. However, hourly fees may discourage clients from seeking advice. Ultimately, there is no one-size-fits-all answer, and the choice depends on individual circumstances.

Factuality Level: 3
Factuality Justification: The article provides a variety of perspectives on the topic of financial adviser fees, but it lacks depth and fails to provide concrete evidence or data to support the claims made by the financial planners quoted. The article contains a lot of opinion and personal perspective presented as fact, without clear evidence to back it up. It also includes some repetitive information and does not delve into the potential conflicts of interest associated with different fee structures.
Noise Level: 3
Noise Justification: The article provides a detailed analysis of the pros and cons of the assets under management (AUM) model for financial advisers. It includes insights from multiple certified financial planners, discussing different compensation models and their implications. The article stays on topic and offers actionable insights for readers who are considering financial advisers. It supports its claims with quotes and examples from industry professionals.
Financial Relevance: Yes
Financial Markets Impacted: The article discusses the fees charged by financial advisers and the different models of compensation. It provides insights into the AUM (assets under management) model and its controversies. While it doesn’t directly impact financial markets or companies, it is relevant to individuals seeking financial advice and may influence their decisions regarding financial services.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article primarily focuses on the fees charged by financial advisers and the different compensation models. It does not mention any extreme events or their impacts. However, it is relevant to financial topics and individuals seeking financial advice.
Key People: David Barfield (Certified Financial Planner at Datapoint Financial Planning), Shawn Ballinger (Certified Financial Planner at Columbus Street Financial Planning), Eric Presogna (Certified Financial Planner at One Up Financial), Lynn Dunston (Certified Financial Planner at Moneta), James Kinney (Certified Financial Planner at Financial Pathway Advisors)

Reported publicly: www.marketwatch.com