I charge 1% a year on the first million dollars I manage. So I am the wrong person to tell you 1% is a rip-off, and the wrong person to tell you it is fine. What I can do is show you how to find out for yourself.
Start with dollars
Percentages hide the bill. Nobody feels “1%”. Turn it into dollars and it gets real fast.
On $500,000, a 1% fee is $5,000 this year. About $417 a month. That is a car payment, paid quietly, out of money you never see leave.
It also grows. In a survey of about 1,000 advisors, the median fee on accounts up to $1 million was 1%, charged on the balance. As the account grows, so does the bill.
Here is a plain example. Take $500,000, add nothing, and assume an 8% return for 20 years. With no fee it ends near $2.33 million. With a 1% fee it ends near $1.91 million. About $219,000 went out as fees, and the ending balance is about $424,000 lower, because every fee dollar stops compounding. That is an illustration, not a forecast. Returns are never guaranteed.
Now the other side
Here is the part the angry articles leave out. A fee buys nothing by itself. It is only worth paying for what it delivers.
Vanguard has studied this for years. Its estimate is that good advice can add about 3% a year in net returns, a large part of it by keeping people from doing the wrong thing at the wrong time. Vanguard also says the benefit shows up unevenly and varies from one client to the next. Read that as “possible”, not “promised”.
So the question is not “is 1% high?” The question is “what am I getting for my $5,000?”
Value per unit of fee. Not the fee alone.
Three cases
You do the work yourself and you hold through bad markets. Your situation is simple, you own index funds, and you did not sell in 2020 or 2022. Then most of that fee is money you could keep. I tell people this when it is true.
You get real planning for it. Taxes coordinated with the investments. A plan you actually follow. Someone who talks you out of selling at the bottom. One avoided mistake can pay for many years of fees.
You get a portfolio and one call a year. Then you are paying a planning price for an investing service. This is the case worth fixing. Ask what else is included. Ask for a lower fee. Or ask about a flat fee, which does not grow just because your account did.
How to tell which case you are
Most people cannot tell from the inside. That is normal. Nobody grades their own advisor from memory.
So I built a quiz for it: 19 questions about how you actually behave with money, set against what the fee costs. You get two numbers side by side. Sometimes the answer is “keep your money.” You can take the quiz here.
One more thing. Looking at the number is the hard part. Most people avoid it for years, the way they avoid the scale. The One Look is a small system from my book for opening the thing you have been avoiding, once.
Related questions: how much a financial advisor costs, do financial advisors actually help, what a wrap fee covers and whether to leave your advisor.
One question for this week: if your advisor mailed you a bill for the dollar amount, instead of taking it quietly from the account, would you pay it without flinching?
As always, if you want to talk any of this through, the door is open. Genti