Financial Advisor Adam Grossman: The One Fee Structure That Saves Wealthy Investors Thousands

A percentage-of-assets fee model charges investors based on portfolio value rather than the amount of work performed. Managing a portfolio of $2 million can require similar effort as managing $10 million, so a 1% fee can overcharge wealthy investors for work that does not increase proportionally. A 1% AUM fee can cost $50,000 on $5 million and $100,000 on $10 million, while flat-fee advisors often charge $8,000 to $15,000 annually. The AUM approach fit earlier decades when advisors relied on individual stock selection, manual rebalancing, and trading commissions. Modern portfolios often use low-cost index funds and software-driven rebalancing, reducing the justification for scaling fees. Over time, fee differences compound into substantial wealth transfers.

"“There isn't a whole lot of difference, in my opinion, in managing a portfolio that has, say, $2 million versus a portfolio that's $3 or $5 or even $10 million.” If Grossman is correct, a wealthy investor paying a percentage of assets funds work that does not exist. The stakes are concrete. A 1% AUM fee on a $5 million portfolio is $50,000 a year. On a $10 million portfolio it is $100,000 a year. A flat-fee advisor typically charges between $8,000 and $15,000 annually. The difference is real money that either stays in the account or leaves."

"“If an accountant looked at someone's income and saw that their income had gone up and then tried to increase their fee proportionally, then they probably wouldn't get away with it. But the investment industry does get away with it.” An accountant filing a return for a household earning $300,000 does not charge ten times what they charge a household earning $30,000. Investment management scales similarly. Consider a hypothetical retiree with a $4 million portfolio. Under a 1% AUM model, the annual fee is $40,000. Under a $10,000 flat fee, the saving is $30,000 a year."

"“The AUM model made sense in 1975, when advisors picked individual stocks, rebalanced by hand, and earned commissions on every trade. It makes far less sense in 2026, when most advisors build portfolios from low-cost index funds and rebalance with software.” The math is not subtle. A 1% AUM fee on a $5 million portfolio is $50,000 a year. On a $10 million portfolio it is $100,000 a year. A flat-fee advisor typically charges between $8,000 and $15,000 annually. The difference is real money that either stays in the account or leaves."

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