A 1% AUM fee is the most common pricing model for fee-only fiduciary financial advisors. AUM stands for "assets under management." A 1% fee means the advisor charges one percent of the value of the accounts they manage for you, every year. On a $250,000 account, that is $2,500 a year. On a $1 million account, that is $10,000. On a $5 million account, that is $50,000, but the rate usually drops on bigger accounts, so the actual fee at $5M might be $30,000 to $40,000. The fee is normally pulled from the account itself, four times a year, using the average balance for that quarter. AUM fees do not include trading costs, fund expense ratios, or custodian fees. Those are extra. So when you compare advisors, ask for the all-in number, not just the headline rate.
How a 1% AUM fee compounds
A 1% drag does not sound like much in any one year. Over decades, it adds up.
| Period | Difference vs. 0% (on $500K growing 7%) |
|---|---|
| 10 years | About $90,000 less |
| 20 years | About $370,000 less |
| 30 years | About $1.0 million less |
That is why "is the fee worth it" is the question, not "is the fee small." A fee-only fiduciary clears the bar for many households. A non-fiduciary 1% advisor who also takes commissions usually does not.
Tiered AUM rates
Many fee-only firms charge tiered rates that drop as the account grows. A common structure looks like this:
- 1.00% on the first $1M.
- 0.75% on the next $1M.
- 0.50% on the next $3M.
- 0.25% above $5M.
That schedule produces a "blended" rate of about 0.85% at $1.5M, dropping toward 0.45% near $5M.
When AUM is the wrong model for you
If most of your wealth is outside investable assets (a business, real estate, a pension, equity comp not yet vested) an AUM fee will undercount the work the advisor actually does. A flat retainer is usually a better fit. The reverse is also true: a household with $3M of investable assets and a simple plan may end up paying for more service than they actually need under a 1% AUM fee. In that case, a flat retainer at $7,500 a year may serve them better than $25,000 a year in AUM.
How to compare 1% offers across firms
Ask each firm for the all-in cost on a $500,000 account. The headline 1% should be the same. The all-in number (fee plus fund expenses, plus custodian costs) is where firms split. A fee-only firm using low-cost index funds might land at 1.10% all-in. A fee-only firm using actively managed funds might land at 1.50% or higher.
