Why I prefer the hourly (or fixed-fee) model
Traditional model: Ongoing AUM fees
Traditional wealth management firms often charge a percentage of your assets under management (an “AUM” fee.) At first glance, it seems small. Over time, it can quietly erode your wealth. Here’s an example from a real firm:
| Portfolio Tier | Annual Fee |
|---|---|
| First $2.5m | 1.250% |
| Next $2.5m | 1.000% |
| Next $5.0m | 0.750% |
| Above $10m | 0.625% |
These fees are just for the wealth manager. Additional fees will be charged by the funds they invest your money into. And don’t forget taxes and trading costs…
Crewson Financial: Hourly or Fixed-Fee
In contrast, my fee structure is very simple.
You have two options:
An hourly rate
A fixed fee for the project
I operate an “advice-only” firm. Be sure to read how I work with my clients.
Keep reading for the top 5 reasons I believe this is a superior model for clients.
Reason #1: Cost Effectiveness
Traditional Model
If you do the math, those seemingly small AUM percentages add up to real dollars. Every. Single. Year.
Imagine a retiree with $2m who builds a budget based on the 4% rule. She can spend $80k annually and $25k goes to her wealth manager – a whopping 31% of her budget. That strikes me as unpalatable.
The fee increases as your portfolio appreciates. And you pay it every single year.
| Portfolio Size | Blended Fee (%) | Annual Fee ($) |
|---|---|---|
| $1,000,000 | 1.25% | $12,500 |
| $2,000,000 | 1.25% | $25,000 |
| $3,000,000 | 1.21% | $36,250 |
| $4,000,000 | 1.16% | $46,250 |
| $5,000,000 | 1.13% | $56,250 |
Crewson Financial
It typically takes me 10-20 hours to create a financial plan for a client (depending on the project scope and complexity of the situation).
Even in year 1, my fees are often significantly lower than those paid under an AUM model.
And my project fee is one-time. Clients who want ongoing check-ins will pay significantly less in future years (only a handful of hours).
My pricing is based solely on the work required. Planning for $2M can often take the same effort as planning for $4M, so you won’t pay more simply because you’ve saved more.
Reason #2: Long-term Impact
Traditional Model
Over time, paying an annual ~1.0% AUM fee makes a massive difference. The following graph shows the difference between earning a net return of 8% vs 7% on an illustrative portfolio.
After 30 years, earning an extra 1.0% annually results in a portfolio that is 32% larger! You worked too hard for your money to miss out on those gains.
Crewson Financial
Paying less in fees means keeping more of your investment return for yourself. Compounded over time, the effects are extraordinary – look at that chart again!