Flat fee financial advisor vs. 1% AUM: which costs less?

At portfolios above roughly $1 million, a flat fee is typically less expensive than a 1% AUM fee. At smaller portfolios, an AUM fee can actually cost less. The crossover point depends on the exact flat fee and the AUM percentage, so the honest answer is: it depends on your portfolio size and which advisor you are comparing.

How does a 1% AUM fee actually work?

AUM stands for assets under management. With a 1% AUM fee, you pay 1% of your invested portfolio to your advisor each year. The fee is usually charged quarterly, so you would pay about 0.25% of your balance every three months. As your portfolio grows, the dollar amount you pay grows with it, automatically, even if the scope of work stays the same.

According to Kitces Research’s 2024 advisor fee survey of 621 advisory firms, the median AUM fee runs roughly 1.00% to 1.20% on portfolios under $1 million, and declines to roughly 0.80% to 1.00% on portfolios above $2 million (2024 data). The 1% figure is widely cited across the industry as a common benchmark, so we use it here as a reasonable illustration.

AUM pricing has a certain logic. When you are just starting out with a smaller portfolio, you pay less in absolute dollars. As your wealth grows, the advisor earns more. For advisors whose work genuinely scales with portfolio size, that alignment can make sense.

How does a flat fee work?

A flat-fee advisor charges a fixed annual dollar amount regardless of how much you have invested. You know the price upfront. If your portfolio doubles over ten years, your advisory fee does not. The work involved, retirement income planning, tax strategy, investment oversight, and coordination of all the moving pieces, is essentially the same whether your balance is $900,000 or $1.5 million.

At Your Path Fi, our flat-fee structure is $12,000 per year. That covers comprehensive ongoing financial planning and investment management, one transparent number with no percentage tied to your balance.

When does a flat fee cost less than AUM?

The comparison is straightforward once you do the math. Here is what a 1% AUM fee costs each year at several portfolio sizes, compared to our flat fee of $12,000:

The break-even point for this specific comparison is a portfolio of about $1.2 million. Below that, a 1% AUM fee is less expensive in pure dollar terms. Above it, our $12,000 flat fee costs less every year. At $1.5 million, the difference is $3,000 per year. At $2 million, it is $8,000 per year. At $2.5 million, it is $13,000 per year.

Is a flat fee always cheaper than AUM?

No, and it is worth being direct about that. For someone with a $1,000,000 portfolio, a 1% AUM fee comes to $10,000 per year, below Your Path Fi's $12,000 flat fee. If you are working with a flat-fee advisor whose fee is meaningfully higher than 1% of your current balance, the AUM structure could cost less for you right now.

The question shifts over time. AUM fees rise automatically as markets grow and contributions accumulate. A flat fee stays fixed until the advisor changes it, usually with advance notice. So the comparison that favors AUM today can reverse as your portfolio grows. Whether that matters depends on your situation and your timeline.

Should retirees pay AUM fees?

For people approaching retirement and those already retired, portfolio balances tend to be at or near their peak. That is exactly when AUM fees become most expensive in dollar terms, because 1% of $1.5 million is a much larger check than 1% of $400,000.

Retirees also tend to need the most planning work: coordinating Social Security timing, managing required minimum distributions, handling Roth conversion windows, navigating Medicare costs, and making sure withdrawals are tax-efficient. That work does not scale with portfolio size. A flat fee that reflects the complexity of the work, rather than a percentage of the balance, may align better with what you are actually receiving.

That said, AUM pricing is not wrong for everyone. If you prefer an advisor whose compensation is directly tied to the value of your investments, AUM can feel like a natural alignment. The important thing is understanding what you are paying, why, and whether the value you receive is worth it.

What does a flat-fee advisor actually include?

The answer varies by firm. Some flat-fee advisors charge for planning only and hand off investment management. Others, including Your Path Fi, bundle comprehensive planning and investment management together. When comparing fees, make sure you are comparing what each advisor actually provides, not just the dollar amounts.

At Your Path Fi, our services include retirement income planning, tax strategy, Social Security analysis, investment management, healthcare planning, and estate coordination, all under one flat annual fee. There is no percentage of assets on top of that.

Working with a fiduciary advisor, whether flat-fee or AUM, means the advisor is legally required to act in your interest. Fee structure is separate from fiduciary status. What matters is both: someone who is legally obligated to put you first, and who charges in a way you understand and can evaluate.

Frequently asked questions

Is a flat fee always cheaper than AUM?

No. For smaller portfolios, a percentage-based AUM fee can cost less in dollar terms than a flat fee. The break-even point depends on the specific flat fee and the AUM rate being compared. At Your Path Fi's $12,000 flat fee and 1% AUM, the break-even is around $1.2 million.

Does a flat fee change if my portfolio grows?

No. A flat fee stays fixed regardless of how your portfolio performs or grows. Your advisor may adjust the fee over time, typically with advance notice, but it does not change automatically based on your balance the way an AUM percentage does.

What is the difference between a flat-fee advisor and a fee-only advisor?

Fee structure and compensation type are related but different. A flat-fee advisor charges a fixed dollar amount rather than a percentage of assets. Fee structure describes how the fee is calculated. A fiduciary advisor is legally required to act in your interest regardless of the fee structure.

What does 1% AUM cost per year on a $1 million portfolio?

At exactly 1% of assets under management, the annual fee on a $1 million portfolio is $10,000. Fees are typically charged quarterly, so roughly $2,500 per quarter. As your portfolio grows, the dollar amount grows with it.