When looking for financial advice, you’ll often come across two common fee structures: hourly financial advice fees and AUM (Assets Under Management) fees. Understanding the difference can save you thousands of dollars in the long run. Let’s break down both options, their pros and cons, and show examples of how much you could save by choosing an hourly advisor over one who charges AUM fees.
What Are AUM Fees?
AUM fees are typically a percentage of the assets an advisor manages on your behalf. For example, if an advisor charges a 1% AUM fee and manages a $1,000,000 portfolio, you’ll pay $10,000 a year(increasing as your portfolio grows), regardless of how often you meet with them. These fees are often deducted from your account automatically, making it easy to overlook how much you’re paying.
Pros of AUM Fees:
- Hands On Help: Advisors with AUM fees handle the investment management so you don’t have to.
Cons of AUM Fees:
- Costly Over Time: As your portfolio grows, so do your fees.
- Misalignment of Interests: An AUM advisor might be incentivized to recommend keeping more money in the investment portfolio, rather than using it to pay off debt or meet other financial goals, since their fee is tied to the amount of assets they manage.
What Are Hourly Financial Advice Fees?
In contrast, hourly financial advisors charge for the time they spend working on your financial plan or consulting with you. This approach allows you to pay for services as you need them, often leading to more transparency and flexibility.
Pros of Hourly Fees:
- Pay for What You Use: You only pay for the advice you receive, not ongoing management.
- More Control: You can hire an advisor for specific needs like retirement planning, tax strategies, or debt repayment.
- Potential Savings: You could save thousands by not paying recurring AUM fees.
Cons of Hourly Fees:
- Limited Investment Management: If you’re seeking an advisor to handle investments continuously, hourly may not cover that.
How Much Could You Save?
Let’s look at two examples:
Example 1: $500,000 Portfolio Over 20 Years
- AUM Fee: Let’s assume your portfolio grows at 8% annually, and your advisor charges a 1% AUM fee. In 20 years, you could pay around $400,000 in fees.
- Hourly Advisor: If you hire an hourly advisor at $250-$500 an hour and need 4 hours of advice per year, over 20 years, you would pay only $20,000-$40,000 in fees. That’s a savings of $360,000-$380,000!
Example 2: $1,000,000 Portfolio Over 30 Years
- AUM Fee: At 1% AUM, you’d pay over $2.4 million in fees over 30 years.
- Hourly Advisor: If you pay the same $250-$500 per hour for 4 hours of advice per year, you’d only pay $30,000-$60,000 over those 30 years. That’s a savings of over $2.3 million that you can keep and invest!
Why More People Are Choosing Hourly Advisors
Hourly financial advisors, like The Hourly Advisor, allow you to control your costs while still getting expert guidance. Rather than paying a percentage of your wealth, you pay for the advice you need when you need it. Choosing hourly financial advice fees over AUM fees can save you significant money, especially as your portfolio grows. If you’re tired of paying hefty AUM fees and want to take more control of your financial planning, consider switching to an hourly model.
Interested in learning more about how hourly advice can benefit you? Book a free consultation with The Hourly Advisor today!