Financial fees for "assets under management"

[question everything]

Glenn Ruffenach Encore column

Following a November column about financial fees. Specifically, I looked at “assets under management,” which is how many advisers are paid. Using this method, advisers assess their fee as a share—typically 1% a year—of the money they’re managing for a client.

My original point: Many retirees don’t understand how this fee model actually works and, as such, could be paying too much for the help they’re receiving. That thinking, not surprisingly, didn’t sit well with advisers, a number of whom told me I was naïve, at best, about the workings of their business. The “AUM model,” many said, is simple, time-tested, and benefits clients and advisers alike.

(snip, where he posted many comments)

For my part, I still see a fundamental disconnect: An AUM fee is tied more to the size of a client’s holdings and less to the actual work being done. Yes, many advisers work diligently for their clients, as do many lawyers, accountants, doctors and other professionals. But financial advisers are the only ones who ask for the size of your wallet before setting a fee.

And yes, clients with large portfolios might well require more work—and, thus, pay bigger fees. But I would wager that many or most advisers have well-heeled clients who require little, if any, hand-holding. If you happen to be one of those individuals, why are you paying the same fees as high-maintenance clients?

And if clients are interested primarily in the results that their advisers produce—and pay scant attention to their advisers’ fees—well, shame on those clients. A good financial adviser would tell them that, over time, steep fees, much like high inflation, can erode the value of one’s assets.

https://www.wsj.com/articles/how-financial-advisers-get-paid-what-the-readers-think-11641505154 (subscription)