The Four Ways Advisors Charge: AUM, Flat Fee, Commission, and the Dynamic Advisory Fee

When people research what a financial advisor costs, they tend to fixate on the number: is 1% too high, is $5,000 a year reasonable, am I paying more than I should. That is the second question. The first one, the one that shapes everything downstream, is how an advisor charges, because the structure of the fee determines what the advisor is incentivized to do, what you actually pay as your situation changes, and whether the cost stays tied to the work or drifts away from it.

There are four ways a wealth manager can charge for advice. Three of them have been around for decades. The fourth is newer, and we will get to it on the same terms as the others. Each has real strengths and real weaknesses, and each fits some situations and misfits others. This piece walks through all four fairly, because the honest version is more useful than a sales pitch, and because the right structure genuinely depends on your circumstances.

One distinction is worth holding onto before we start, because most fee writing blurs it. How you are charged (the structure) and what you receive for it (the scope) are two separate questions. Any of these four structures can sit on top of excellent, comprehensive service or thin, perfunctory service. A low fee for almost nothing can be a worse deal than a fair fee for a genuinely integrated relationship. So as you read, keep both questions in view: which structure fits your situation, and what you are actually getting for whatever you pay. The structure alone never tells you whether the value is there.

AUM fee

The assets-under-management fee is the percentage model, and it is by far the most common. The advisor charges a percentage of the assets they manage for you, billed quarterly, calculated on your balance at the end of the billing period. The reference point most people have heard is 1%, and the real-world range runs roughly 0.75% to 1.5%, declining at higher asset levels. According to Kitces Research, 86% of advisory firms still rely on AUM fees as their primary method of charging for advice, and counting firms that use it in any capacity, the figure reaches 92% of advisors. It is the default of the industry.

It is also more nuanced than the percentage alone suggests, because firms structure the percentage in different ways. A graduated schedule charges blended rates across tiers (1% on the first tranche, less on the next, and so on); a cliff schedule applies the lower rate to the entire balance once you cross a threshold; a flat-rate schedule applies one percentage to everything regardless of size. Graduated schedules are the norm, used by 58% of advisory firms. This matters because the most common criticism of the AUM model, that an advisor managing $4 million does twice the work of one managing $2 million yet charges twice as much, is mostly a caricature. Most firms do not scale fees in a strictly proportional way. In practice, a $2 million client might pay around 1% ($20,000) while a $4 million client pays closer to 0.8% ($32,000), which Kitces describes as a 40% fee increase for a 100% increase in assets.

The genuine strength is alignment in the growth direction. When your portfolio grows, the advisor's compensation grows with it, so the advisor has a direct stake in your accounts doing well. Clients tend to find this intuitive and reassuring, and it is a real advantage over models where the advisor is paid the same whether your portfolio thrives or stalls. The AUM fee also bundles ongoing planning, tax coordination, and other services into a single rate that is easy to understand, and on average that fee covers a great deal more than investments: Kitces finds that 59% of a client's AUM fee is allocated to investment management, with the remaining 41% attributed to financial planning and other advisory services.

The real weakness is that even with graduated tiers, the dollar fee rises without a ceiling while the work plateaus. The 40%-for-100% scaling above is fairer than the caricature, but it still means fees climb faster than the underlying work as assets grow, especially through market gains, deposits, and liquidity events that increase your balance without changing what the advisor does day to day. The percentage on your statement stays familiar; the dollar amount, compounded over decades, tells a different story. The blended rate does decline at higher asset levels, but slowly, and rarely fast enough to keep pace with how gently the actual work scales. For a large and growing portfolio, an uncapped percentage quietly becomes a charge on size rather than service.

Flat fee

A flat fee is a fixed dollar amount, charged annually or as an ongoing subscription or retainer, independent of your portfolio size. You pay the same whether your accounts are up or down, and the fee covers an agreed scope of planning and, often, investment management. Flat and subscription structures are a smaller but growing share of how advisors charge, and they tend to be favored by firms built around planning rather than asset management.

The genuine strengths are real and worth stating plainly, because the flat fee is the structure that most directly addresses the AUM model's central weakness. First, it removes the asset-level conflict entirely. The advisor's compensation does not change based on whether you keep assets under management, pay down your mortgage, buy real estate, or hold a large cash position, so the advice on those questions is insulated from the advisor's own pay. Second, it is fully transparent: you know the exact dollar cost up front, with no quarterly percentage to translate into a number. Third, at higher asset levels it can simply be cheaper, because a fixed dollar amount stops climbing while a percentage keeps going. For a large portfolio, a flat fee can cost meaningfully less in absolute dollars than 1% of assets.

The weaknesses are the mirror image. A single fixed fee does not flex with the complexity of your situation, so the amount that made sense at the start of a relationship may not reflect what the relationship requires years later as your finances grow more involved. The model can be proportionally expensive for clients with smaller portfolios, where a fixed annual fee is a larger share of a smaller asset base. And flat fees are not static over time; they tend to rise with inflation and expanding scope, so the predictability is real in any given year but the number generally moves upward across the relationship. These are genuine tradeoffs, not disqualifiers, and for the right client the flat fee is an excellent fit.

Commission

The commission model is structurally different from the other three, because it is not a standing advisory fee at all. The advisor is compensated through the products you buy: mutual funds, annuities, insurance, structured products, with the compensation built into the transaction. There is no recurring percentage of assets and no annual planning fee; the advisor is paid when a product is sold or exchanged. This model is common at broker-dealers, and it is the least used of the four and steadily declining, for reasons the structure makes clear.

There is a genuine case for it: for a true buy-and-hold investor who rarely transacts and does not want ongoing advice, a one-time commission can cost less than a recurring fee compounded year after year. One point of accuracy is also worth keeping, because the usual shorthand is out of date. The old framing held that commissioned brokers answered only to a "suitability" standard while fee-only advisors were fiduciaries. That binary no longer describes the law: since June 30, 2020, the SEC's Regulation Best Interest has required broker-dealers to act in the best interest of the retail customer at the time a recommendation is made, a standard that substantially enhances their obligations beyond the old suitability requirement. So "commissioned means unregulated" is simply wrong.

The weakness is why the model keeps losing ground. Reg BI raised the floor but did not eliminate the underlying conflict, because a point-in-time best-interest obligation attached to a transaction is structurally different from a continuous fiduciary duty owed across the whole relationship. When the advisor is paid only when something is bought or sold, the incentive runs toward transactions, and it is most visible in product replacement. The clearest example is swapping one annuity for another after the surrender period: as NASAA describes it, every such move incurs new surrender fees, starts a new surrender period, and creates an opportunity for a fresh commission, which is exactly why FINRA built specific guardrails around the transaction. The model is legal and supervised, and not every commissioned recommendation is wrong, but the conflict is real, often invisible to the client, and harder to remove than in the fee-based models. For most people seeking an ongoing advisory relationship, it is the weakest of the four. (We treat annuities specifically, including where they genuinely fit, in a separate piece.)

Dynamic Advisory Fee

The fourth structure is one we developed at Vaultis, and we will describe it on the same terms as the others rather than as a closing flourish. It exists because the three established models force a choice the others treat as unavoidable: the AUM fee gives you alignment but no ceiling, the flat fee gives you a ceiling but surrenders alignment, and we did not think clients should have to pick one and give up the other. The Dynamic Advisory Fee was built to refuse that tradeoff.

It is, in one line, a percentage-based advisory fee with a fixed dollar cap, paired with a separately stated direct cost. Mechanically, the advisory fee starts as a percentage and scales with your assets the way an AUM fee does, until it reaches a fixed dollar cap at a defined asset level. At that point it holds steady rather than continuing to climb, and steps to a new fixed cap at the next tier. Alongside it runs a separately stated direct cost, disclosed on its own rather than folded into the advisory rate, which covers the operational side of the relationship (trading, custody operations, reporting) and declines as assets grow. The result is an effective rate that falls as your portfolio grows rather than holding flat. This matters because of a quiet fact about industry pricing: even as advisors discount their headline rate for larger portfolios, the underlying product, trading, and platform costs barely move, so the typical all-in cost stays stubbornly high at the top. Kitces research, drawing on Bob Veres' fee data, puts the typical all-in cost for portfolios over $5 million at around 1.2%, and notes it declines very little as assets grow further, because those underlying layers stay roughly static across the entire asset spectrum. A structure that states the direct cost separately and steps it down by tier is built to attack exactly that static layer, which is why the Dynamic Advisory Fee's all-in cost can fall toward 0.60% at higher asset levels rather than flattening out above 1%. The full schedule and the cap thresholds live on the Dynamic Advisory Fee page; the point here is the structure, not a number to memorize.

What the design buys is the half of the equation a cap alone would miss: alignment. The mechanism above controls cost, but a fixed dollar cap by itself is just a flat fee with extra steps, which is why the comparison to a flat fee is the one worth drawing precisely. A flat fee charges the same dollar amount from the first dollar, regardless of portfolio size or complexity, and that is exactly what gives it its clean transparency. The Dynamic Advisory Fee instead keeps a stake in the relationship that a pure flat fee gives up: the advisory fee scales as a percentage while you are still building, so what you pay tracks the complexity of the engagement, and then the cap ensures that stake never outgrows the work behind it. The value of integrated advice is real, and the fee reflects it; what the cap concedes is that past a certain point, more assets stop meaning more work, and the fee should stop there. That is the whole idea: the value is real, but it is not infinite, and the structure is built to say so.

Like every model here, it is not the cheapest option in every scenario. At very high asset levels a pure flat fee can cost less in absolute dollars, and we say so directly. The Dynamic Advisory Fee is the structure we believe best balances alignment, cost control, and transparency across the range of clients we serve, not a claim to be the lowest number on every portfolio.

How to decide which structure fits you

The honest answer is that the right structure depends on your situation, and the structures sort fairly cleanly by circumstance.

If you are a disciplined buy-and-hold investor who transacts rarely and does not want ongoing advice, the commission model can genuinely be the cheapest way to access the market, as long as you go in clear-eyed about the conflict on any future product recommendation. If you have a smaller portfolio, or your need is planning rather than investment management, a flat or subscription fee often serves you best, because it gives you access without charging a percentage of an asset base that does not yet warrant it. If you value the advisor having a direct stake in your portfolio's growth and you are early in building, an AUM fee or a Dynamic Advisory Fee both deliver that alignment.

The Dynamic Advisory Fee earns its place in a specific situation, and it is worth being direct about which. The cap does nothing for a $400,000 portfolio, because an uncapped percentage on a smaller balance is not yet the problem. It does a great deal for a portfolio that has grown past the point where a percentage keeps making sense, typically somewhere north of $2.5 million, where the situation also carries real complexity: concentrated stock, multi-account tax coordination, estate planning, a liquidity event, the kind of interlocking picture that wants integrated, family-office-style coordination rather than investment management alone. For that client, the structure does two things at once. It holds the cost flat where an uncapped percentage would compound against a growing balance, and it reflects a belief we hold plainly: that the value of the advice is real and worth paying for, and also that it does not scale forever with the size of the account.

Which returns to the distinction we opened with. Structure and scope are separate questions, and the structure you choose never settles whether the value is actually there. The sharper way to evaluate any advisor is to ask both at once: is the fee structured so that what I pay stays tied to what I get, and is what I get the full scope of the work, the coordinated tax planning, estate planning coordination, and direct-expert investment management, rather than a model and a quarterly rebalance dressed up as advice. A fair structure on top of thin service is still thin service. The aim should be full scope and a fee that knows its limits, on both axes at once.

If you want to see how your own numbers look under each structure, including your true all-in cost today, you can request a fee analysis below and we will show you the comparison on your actual statements.

Frequently asked questions

What are the different ways financial advisors charge fees?

There are four main structures: the assets-under-management (AUM) fee, a percentage of your portfolio; the flat fee, a fixed dollar amount; commissions, paid when you buy products; and the Dynamic Advisory Fee, a percentage-based advisory fee with a fixed dollar cap, paired with a separately stated direct cost. Each has genuine strengths and trade-offs, and the right one depends on your situation.

Is an AUM fee, a flat fee, or the Dynamic Advisory Fee better?

It depends on your assets and how much complexity your situation carries. An AUM fee aligns the advisor with your portfolio's growth but rises without a ceiling as you accumulate. A flat fee removes the asset-level conflict and can be cheaper for a large portfolio, but it does not flex with complexity and tends to drift upward over time. The Dynamic Advisory Fee was designed to keep the alignment of an AUM fee while capping the cost the way a flat fee does, so the advisory fee scales while you are building and then stops growing past a certain asset level. None is universally best; the right one depends on your circumstances.

Is commission-based advice always a bad deal?

No. For a true buy-and-hold investor who rarely transacts and does not need ongoing advice, paying a one-time commission can cost less than a recurring fee year after year. The issue is not that commissions are inherently wrong; it is that the advisor is paid when products are bought or sold, which creates a conflict that is most visible in product replacements like swapping one annuity for another after the surrender period. The model is legal and regulated, but the conflict is real and worth understanding before you rely on commissioned advice.

What exactly is the Dynamic Advisory Fee?

It is a percentage-based advisory fee with a fixed dollar cap, paired with a separately stated direct cost. The cap means the advisory fee stops growing once your assets pass a certain level, so you are not paying an ever-larger fee simply because your portfolio grew. The fee covers an integrated team: coordinated tax planning, estate planning coordination, and direct-expert investment management.

Disclosures

This material is provided by Vaultis Private Wealth for educational and informational purposes only and does not constitute investment, tax, legal, or accounting advice, nor an offer or solicitation to buy or sell any security or to engage Vaultis Private Wealth for advisory services. The views expressed are those of Vaultis Private Wealth as of the date of publication and are subject to change without notice.

Fee structures, industry statistics, and regulatory descriptions referenced herein are drawn from third-party sources believed to be reliable, including Kitces Research, Inside Information (Bob Veres), the U.S. Securities and Exchange Commission, FINRA, and NASAA. Such figures reflect industry medians, ranges, and rules as of the date of publication, are subject to change, and do not reflect the fees charged by any specific firm other than where expressly stated. Comparisons among fee models are general in nature; the most suitable structure depends on an individual's specific circumstances.

References to the Vaultis Dynamic Advisory Fee describe the structure of the model in general terms. Specific fee terms, caps, and direct costs are set out in the Dynamic Advisory Fee schedule and in each client's executed advisory agreement, which controls in the event of any conflict with the information presented here. Any examples of effective rates are illustrative only and will vary based on portfolio size, composition, and other factors.

Vaultis Private Wealth is a Registered Investment Advisor. Registration does not imply a certain level of skill or training. Vaultis operates under a fiduciary standard and is obligated to act in the best interest of its clients. Advisory services are offered only to clients or prospective clients where Vaultis Private Wealth and its representatives are properly licensed or exempt from licensure. Additional information, including disclosures regarding potential conflicts of interest, is available in our Form ADV brochure, available upon request. Past performance does not guarantee future results. Investing involves risk, including the possible loss of principal.