Wealth Management Fees for High-Net-Worth Individuals
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Table of Contents
How Much Does Wealth Management Cost?
Alternative Wealth Management Fee Structures
Are Wealth Management Fees Worth It?
Wealth Management Frequently Asked Questions
Customizing Wealth Management
The intricacies of managing a large number of assets lead many high-net-worth individuals to consider working with a wealth management group. Wealth managers are a type of financial advisors who specialize in working with high-net-worth individuals and often offer a wide range of services.
However, wealth management fees can quickly accumulate with large portfolios, and there are a few different fee structures to consider, such as percentage-based, flat fee, or hourly. This leaves many high-net-worth individuals wondering whether wealth management costs are worth the value gained.
How Much Does Wealth Management Cost?
Average wealth management fees are 1% of assets under management (AUM). This fee covers comprehensive services―such as tax optimization, estate planning, and legal advice―and a customized strategy, which makes it a worthwhile investment for some. Fees vary, though, and some wealth management groups might charge as low as 0.25% for portfolios over $100 million, while 0.75% seems to be the norm for smaller portfolios in the $10 million range.
However, not everyone subscribes to this approach, and many high-net-worth individuals have concerns about paying high fees for basic portfolio management, especially when the investing strategies are not complex or trading is infrequent. For larger portfolios, the 1% fee can add up significantly over time, which might prompt high-net-worth individuals to look for more economical alternatives.
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Alternative Wealth Management Fee Structures
While 1% AUM is still the standard, wealth management firms are increasingly offering alternative fee models, such as flat fees or hourly rates. The transparency and predictability of these models can be appealing. For example, if a wealth management firm charges a flat annual fee of $10,000, its clients can depend on that rate without worrying about fees growing exponentially with portfolio size.
For high-net-worth individuals with concerns about wealth management fees stacking up, it can be wise to start with a flat fee advisor for an initial consultation to discuss objectives and portfolio allocation before committing to an ongoing management fee. This strategy offers a middle ground for those seeking professional advice without the burden of continuous percentage-based charges. Depending on the results of the consultation, the client can then make a more informed decision about whether regular wealth management fees are appropriate for their situation.
| Fee Structure | AUM Fee Range | Flat Fee Example | Accumulated Fees Over 20 Years | Services Included |
|---|---|---|---|---|
| Percentage-Based (AUM) | 0.25% to 1% | N/A | $1.3M at 1% AUM | Tax optimization, estate planning, access to alternative investments |
| Flat Fee | N/A | $10,000 per year | $200,000 flat fee | Comprehensive services depending on contract |
| Hourly | N/A | N/A | Varies based on time spent | Specific services, e.g., financial planning or investment advice |
Are Wealth Management Fees Worth It?
Wealth management, in some form, is essential for high-net-worth individuals. The "right" approach to wealth management, however, is highly individualized. Some high-net-worth individuals prefer a "set it and forget it" strategy, relying on wealth managers to handle all aspects of their financial affairs. Others prefer a more hands-on approach, using advisors for periodic pulse checks rather than continuous management.
It’s important to note that at a 1% AUM fee, managing a $3 million portfolio with a 7% annual return over 20 years can result in $1.3 million in fees. By contrast, a flat fee model may cost as little as $200,000 over the same period, illustrating the differences that fee structures can make in the long term.
That being said, the complexity of high-net-worth portfolios lends itself well to working with wealth management firms. Some of the benefits include:
Increased Returns on Investments: While returns are never guaranteed, the expert guidance of a wealth manager can boost returns. A 2019 Vanguard report found that a financial advisor can boost returns by 3%, while Russell Investments reported a 3.75% increase.
Convenience: Wealth management for high-net-worth individuals is complex and time-consuming. Depending on personal interests, lifestyle, and availability, it might make more sense to outsource wealth management to a firm.
Objectivity: Wealth managers can assess the numbers without concerns that personal bias might skew choices. This can be particularly helpful when handling stressful financial situations such as legal disputes or estate planning.
Comprehensive Services: Additional services—tax planning, bill payment, estate management, tax loss harvesting, and access to exclusive investment opportunities— can justify higher fees for some individuals. For many, the inclusion of these services is a significant factor in deciding whether to pay higher fees.
Access to Private Funds: Wealth managers can sometimes help investors take advantage of private funds not available publicly.
For high-net-worth investors well-versed in personal finance, a 1% AUM fee just for simple asset management or investments into stock or bond index funds may not be worth it. Splitting assets between managed accounts and low-fee options in a brokerage account can help lower fees. Still, there are tasks even the most savvy investors lack the time or expertise to effectively manage alone. If outsourcing services to a wealth manager will improve peace of mind and portfolio performance, then the expenditure is likely worth it.
There is also the option to take a hybrid approach, with some managed assets covered by a wealth manager and other basics in a brokerage account. By lowering the amount of managed assets, a lower fee tier might become feasible.
Wealth Management Frequently Asked Questions
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Wealth management services may cover areas such as:
Estate planning
Financial planning
Investment management
Property planning
Philanthropy
Retirement planning
Tax services
Legal planning
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Both financial advisors and wealth managers provide financial advice, but “financial advisor” is a broader umbrella term that includes wealth management as a subset. As such, financial advisors may work with clients in a wide range of income and net worth categories. Wealth managers are a type of financial advisors who specialize in more complicated financial situations and high-net-worth to ultra-high-net-worth clients. Because of this, wealth management fees tend to be higher compared to what financial advisors charge.
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Yes, fee negotiation is always on the table. While 1% is standard, high-net-worth individuals can discuss other payment structures or a lower payment percentage. With alternatives such as robo-advisors (which generally charge between 0.25% and 0.50%), wealth managers have become increasingly willing to negotiate fees. It is best practice to ask a potential wealth advisor to demonstrate the value they will provide and why the fees they are charging are appropriate given the services offered. Ask what assets are being covered to ensure full clarity on how the wealth management fees are being put to use.
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High-net-worth individuals will want to carefully vet any wealth managers, taking into account reputation, experience, and services offered. The decision can be made easier by discussing options with high-net-worth peers who can share firsthand experience with wealth management firms.
Customizing Wealth Management
The decision to work with a wealth manager, and for what cost, ultimately depends on individual needs and priorities. For some, the peace of mind and comprehensive services provided by a full-service wealth manager justify the fees. Others may find value in a more à la carte approach, hiring specialists as needed on an hourly or flat fee basis.
Whether opting for a traditional percentage-based fee or exploring alternative fee structures, the key is to ensure that the chosen path adds tangible value to one's financial well-being.
Regardless of the specific wealth management strategy in place, a high-net-worth community provides the opportunity to discuss complicated topics such as high-net-worth wealth management with peers who can provide objective insights and recommendations. Join Long Angle to connect with a diverse and supportive community and access curated investments and focused peer groups.
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