Selecting the Right Fee Structure AUM vs Hourly

In an increasingly complex financial landscape, choosing the right fee structure for financial advice isn’t simply a cost decision, it’s a strategic move that can shape the course of your wealth. In alignment with the principles of integrated business strategy, it’s essential to consider fee structures as part of a broader financial plan that is responsive to your goals, adaptive to market dynamics, and focused on sustainability over time.

Here, we explore two major fee structures, Percentage of Assets Under Management (AUM) and Hourly Fees, considering their advantages, trade-offs, and strategic fit for different types of investors.

1. Percentage of Assets Under Management (AUM): Strategic Portfolio Growth with Active Support

The AUM model charges a fee based on a percentage of the assets under management, typically ranging from 0.5% to 1.5%. This model is popular with investors seeking ongoing, hands-on portfolio management to maximise growth. Continuous management and support can be especially valuable during economic shifts, where an advisor’s proactive approach may help steer investments through volatility.

In our analysis, a 1% AUM fee on an initial investment of $100,000 with an annual fixed contribution of $10,000 resulted in a total investment value of $1,364,931 with an investment return of 7% per year over 30 years. However, the cumulative impact of this fee can be substantial over the long term, highlighting the importance of strategic alignment: if a client’s goal is maximum growth without high-touch management, other fee models may offer more favourable results. For clients who prefer a collaborative, ongoing relationship with their advisor, this structure provides regular oversight and support, aligning with an integrated financial strategy.

2. Hourly Fee Model: Customised Financial Guidance on Demand

The Hourly Fee model allows clients to pay solely for the time their advisor dedicates to specific financial issues, rather than continuous oversight. For those who want periodic check-ins or specialised insights, this model keeps costs manageable while providing access to tailored advice. By taking a selective, focused approach, clients can benefit from professional guidance without the higher costs associated with continuous management.

For example, with an advisor fee of $200 per hour for 5 hours per year (Increasing at 3% Inflation per year), the 30-year investment value would reach $1,576,209, a significant increase compared to the AUM model. This fee structure also supports a self-driven financial strategy, where clients seek guidance only when they encounter complex decisions, allowing more capital to remain invested and grow over time. For clients who are comfortable managing their finances but value strategic insights for major decisions, the Hourly Fee model is a cost-effective choice.

An Integrated Financial Strategy for Sustainable Wealth Growth

Just as thriving in today’s business world requires an integrated strategy that combines insight, innovation, and adaptability, sustainable financial growth depends on selecting a fee structure that aligns with your personal goals and financial capacity. An effective financial strategy considers your tolerance for risk, desired level of advisory support, and plans for future growth, ensuring that your chosen fee structure enables rather than restricts your financial objectives.

Our experience in business strategy consulting has shown that when clients align their financial and personal intentions with a thoughtfully chosen advisory model, they maximise the impact of their investments and create sustainable value. Here’s a summary to help guide your decision:

• AUM Fee: Ideal for clients seeking full, ongoing portfolio management, although it may lower returns over the long term due to compounded fees.
• Hourly Fee: Best for those who need occasional, targeted guidance, allowing more of your capital to remain invested for maximum growth.

By choosing Option 2 (Hourly Fee) instead of Option 1 (AUM Fee), the additional investment growth of $211,278 could allow you to retire approximately 4 years earlier based on a retirement income of $50,000 per year.

This approach offers a substantial advantage in terms of financial freedom and the potential for an earlier retirement. There will also be a significant advantage during retirement as the excess from total AUM Advisor Fees of $950,537 vs the Hourly lifetime fees of $230,594 will be available for further investment growth and increased annual Retirement payments.

Link to detailed analysis here: Full Fee Analysis

In today’s evolving financial landscape, alignment between advisory fees and client objectives allows for optimised, sustainable wealth management. A well-chosen fee structure forms part of an integrated strategy that ensures your wealth and values are working in harmony, creating a financial legacy built to thrive even after you are gone.

If you are interested in learning more about optimising you investment portfolio for retirement, let's have a complimentary discussion.