Should You Pay Asset-Based Fees?

(Why transparency and alignment matter more than tradition)

“Incentives quietly shape every outcome.” - Paul Powell

For decades, the financial industry has treated the “1% of assets under management” model as the default pricing structure for advice.

It’s simple, familiar, and—at first glance—seems fair.

But familiarity isn’t the same as alignment.

Institutions abandoned percentage-based compensation long ago because they learned a simple truth: how an advisor gets paid determines how an advisor behaves.

The asset-based fee model quietly distorts incentives, erodes returns, and turns clients into assets.

It’s time to examine why transparency—not tradition—should guide the next era of financial advice.

1. The Economics Behind a “Simple” Fee

Key Idea: Percentages feel small; compounding makes them big.

The 1% fee looks harmless on paper. On a $2 million portfolio, it’s $20,000 a year—every year—regardless of results.
Add growth and decades, and that percentage compounds into hundreds of thousands in lost wealth.

Institutions quantify fees in dollars, not percentages, because it clarifies the real cost of advice and keeps focus on value, not habit.

2. Incentives Shape Behavior

Key Idea: What gets rewarded gets repeated.

When an advisor’s income rises with portfolio size, the path of least resistance is clear: keep assets in-house.

That subtle incentive can discourage debt reduction, charitable giving, or business reinvestment—decisions that may serve the client but shrink the advisor’s pay.

Consider two investors: one with $1 million and another with $2 million.
If both receive identical portfolios, planning, and service, the second pays twice as much for the same work.

The higher fee doesn’t reflect greater complexity—it reflects an outdated pricing convention that rewards accumulation, not alignment.

Flat or project-based fees remove that bias, tying compensation to the scope of work rather than the size of the account.

3. The Institutional Alternative

Key Idea: Transparency creates alignment.

Large pension funds and endowments rarely compensate advisors as a percent of assets.
They use flat, contractual fees tied to scope, deliverables, and measurable performance.

The reason is straightforward: transparency invites accountability.
When both sides know exactly what is paid and what is expected, the relationship becomes partnership—not product distribution.

4. Measuring Real Value

Key Idea: Cost is easy to count; value requires evidence.

Flat-fee advisors can articulate precisely what clients receive—quarterly reports, performance reviews, coordination with tax or legal professionals, and measurable benchmarks.

That clarity allows for continuous evaluation instead of blind faith.

When pricing and performance are both defined in advance, “trust” becomes the by-product of process, not persuasion.

Conclusion:

Asset-based fees persist because they’re easy to explain and lucrative to maintain.
But simplicity isn’t the same as fairness.

True fiduciary alignment requires that compensation never compete with the client’s best interest.

Transparency turns pay into proof—and that’s how professionals, not promoters, earn trust.