An asset-based fee is a percentage charge tied to your assets under management (AUM). Financial advisors commonly apply this fee, usually falling within the range of 1% to 2% of the total assets they oversee. For instance, if you possess $100,000, your annual asset-based fee would probably amount to $1,000, $2,000, or a figure somewhere between these values.
This type of fee structure is straightforward and easily understandable. It aligns the advisor’s compensation with the client’s investment success; as the client’s portfolio grows, so does the fee paid to the advisor. Conversely, if the portfolio declines in value, the fee decreases accordingly. This fee model fosters a sense of shared interest between the advisor and the client, as both benefit from portfolio growth.
Moreover, asset-based fees can simplify financial planning for clients. Rather than paying separate fees for various services, such as investment advice and portfolio management, an asset-based fee covers these aspects comprehensively. Clients appreciate this transparency and the clarity it brings to their financial arrangements, helping them focus on their investment strategy without worrying about hidden costs.
(Response: A good asset-based fee is typically in the range of 1% to 2% of your assets under management. This percentage fee model offers simplicity, aligns the advisor’s interests with the client’s, and covers a range of services under a single fee structure.)