If you use a financial advisor, you’ll have to pay their fees, which could be calculated under several different structures.
It’s a relationship that requires a lot of trust, whether you’re hiring someone for advice, or to actively manage your investments.
However, what would happen if your trusted advisor accidentally overcharged you? Would they just owe you the amount you overpaid, or do they have to include interest? If so, how is it calculated?
Imagine Jeff, who has been working with the same financial advisor for a decade, and was recently alerted that his account had been overcharged for advisory fees for 10 years, to the tune of almost $15,000.
Jeff isn’t sure that the amount the firm his advisor is employed with is offering a fair recompense, and he’s wondering if he should report the incident to a regulator.
To check whether you are being charged accurately, it’s important to understand what kind of rate structure the advisor uses.
If you work one that is fee-only, they do not accept commissions for their services (1). According to the National Association of Personal Financial Advisors, they could charge hourly, as a retainer, as a percentage of assets, or as a fixed rate. If their fee is based on a percentage of assets, this is known as “assets under management” (AUM).
Advisors who use an AUM fee structure may have a minimum asset requirement for clients they work with (2). They may also employ a tiered system, where fees go down as assets grow; for example 1% on a client’s first $500,000, and 0.5% for assets above that (2).
While it’s easier to tell if you have been overcharged by an advisor when they use a fixed rate, hourly, or retainer structure; if they use AUM, you might not notice any discrepancies as easily since the fee is directly withdrawn from your investment account. In a CNBC report, Kathryn Berkenpas, the managing director of corporate growth at the CFP Board, a non-profit that oversees the certified financial planner designation, said that this can sometimes mean that these fees “fly under the radar (3).”
CNBC also notes how AUM is “the most common type of advisor compensation,” as roughly 72% of advisors employed an this fee structure in 2024, and 78% are expected to do so in 2026, according to financial services consulting firm Cerulli Associates.
