AUM vs Flat-Fee: Why We Don’t Charge a Percentage of Your Assets
Our Fees vs. AUM Fees
The most common way financial advisors charge for their services is the assets under management fee, often called an AUM fee. The advisor takes a percentage of your portfolio each year, typically somewhere between 0.5% and 1.5%, and that fee gets deducted directly from your investment accounts.
It is presented as a small number. A fraction of a percent. But the dollar figure behind that percentage compounds over time in ways that quietly reshape what your portfolio looks like decades from now. And the fee itself has almost nothing to do with how much work your advisor is actually doing.
We charge a flat project fee instead. Here is why.
A Percentage of Assets Is Not a Measure of Complexity
The amount of work involved in building and maintaining a financial plan does not scale neatly with the size of an investment portfolio. The complexity of your situation does.
Consider two families who might both work with Scholar:
Mark and Lena
sold their company three years ago. Most of the proceeds sit in a diversified portfolio of $12 million. They are in their early 60s, the kids are grown, and their financial life has actually simplified since the exit. The planning work now centers on tax-efficient drawdown, charitable giving strategy, and intergenerational wealth transfer.
The Chen Family
is at a different stage. Dr. Chen is a physician at the peak of her earning years. The household income runs into seven figures and includes deferred compensation, partnership distributions, and equity in the practice. Investable assets sit at $4.5 million, but there is also a primary residence, a vacation home, two rental properties, college planning for three children, and a multi-state estate picture.
Under a 1% AUM fee, Mark and Lena would pay $120,000 a year for investment management. The Chens would pay $45,000. Mark and Lena would pay nearly three times what the Chens pay for a financial life that requires considerably less planning work.
We would charge Mark and Lena less than the Chens. The Chens have more moving parts, more coordination required across CPAs and attorneys, and more value at stake from getting the planning right. Mark and Lena’s situation is well-defined and largely about execution. The Chens are still building, still optimizing, still navigating decisions with long tails.
This is the disconnect at the heart of the AUM model. The fee is tied to the wrong variable.
The Compounding Math
A percentage of assets sounds small in any given year. Over a long investing horizon, it stops sounding small.
The fee compounds in two directions at once. Your portfolio grows, so the dollar amount of the fee grows. And the dollars taken out each year are dollars that no longer compound for you. They compound for your advisor instead.
Take a portfolio of $5 million invested for 30 years at a 7% annual return. A 1% AUM fee reduces the ending portfolio value by millions of dollars compared with a flat fee structure. The longer the time horizon, the wider the gap.
We built a calculator so you can run the numbers on your own situation:
AUM Fee Impact Calculator
See how a percentage of assets under management affects portfolio growth over a long investing horizon.
Skin in the Game Is a Smaller Argument Than It Sounds
Advisors who charge an AUM fee often argue that the structure aligns their interests with yours. When your portfolio grows, their fee grows. When your portfolio falls, their fee falls. They have skin in the game.
The math tells a different story.
Imagine a $1 million portfolio under a 1% AUM fee:
You have a $1,000,000 portfolio and your advisor charges an AUM fee of 1%.
If the portfolio earns a 0% return, you still pay a fee of $10,000/year.
If the portfolio earns a 10% return, the portfolio value is $1,100,000 and you pay a fee of $11,000.
If the portfolio loses 10%, the portfolio value is $900,000 and you pay $9,000.
Want to go deeper on AUM fees?
A listener with $18 million at a wirehouse pays over $200,000 a year in AUM fees. On the Scholar Wealth Podcast, Stephan walks through the math, the structural problem with AUM, and where the threshold for self-management actually sits.
The Coordination Problem
There is a subtler issue with charging based on assets under management. It can quietly influence the advice you receive.
Consider a client deciding whether to pay off a mortgage with a portion of an investment portfolio, or take a lump sum distribution from a 401(k) to fund a business, or delay claiming Social Security and live off investments in the interim. Each of these decisions reduces the value of the portfolio the advisor manages. Each of these decisions also reduces the advisor’s fee for that year and every year going forward.
The advisor may still give excellent advice. Most do. But the fee structure is pulling in the opposite direction of some of the most important decisions a family makes. We would rather not have that pull in the room at all.
A flat fee removes it. Whether your portfolio grows, shrinks, or sits still, the fee we charge for the work is the same.
How Our Fee Works
Scholar charges a flat project fee based on the complexity of the planning work. The fee is agreed to in writing before any work begins. It does not change based on the size of your portfolio. We do not take custody of your assets, and we do not require you to move accounts to a particular custodian.
This means two things in practice. First, the families we serve know exactly what they are paying and why. Second, our incentives stay focused on the planning, not the portfolio.
Every family’s financial life is different, and the right fee structure depends on what you actually need. The fastest way to understand whether the Scholar model fits is to look at a few real situations.
What’s Next?
Every engagement begins with a brief intake form so your advisory team can prepare ahead of time and align the conversation to your financial picture and goals. From there, you receive a tailored proposal built around your specific situation, walked through with you in detail so every question is answered before any commitment is made.