Key points:
- DIY investors are increasingly relying on hourly financial planners for one-time consultations to avoid paying a 1% fee on their total portfolio value.
- How to reduce the conflict of interest a financial advisor might face so they can act as a true fiduciary.
- Which types of clients and situations make a Fee-Only hourly financial planner their absolute best option?
The other day, I received a call from a client who clearly had a substantially high investment portfolio. He asked me multiple times if I truly was a Fee-Only Advisor. He wanted to make sure that if he hired us under our hourly financial planning service, he would only pay for the actual hours he used rather than a percentage of his portfolio value. We assured him that, indeed, we were not going to charge him that famous 1%, and that our advisory services at Advise Financial were simply a flat hourly rate.
He told me he had been calling several planners across Florida, specifically in Palm Beach County and Boca Raton, and so far hadn’t found anyone who truly billed by the hour. Everyone else was either trying to sell him financial or insurance products, or ultimately wanting to manage his portfolio to collect a 1% fee on Assets Under Management (AUM).
This client felt very comfortable managing his own portfolio and saw no value in paying a 1% fee on an account that was well over $20 million. He asked me: “How is an advisor going to show me they can deliver enough value every single year to justify a $200,000 annual fee?” And let’s not even talk about multiplying that number over 20 years; we would be talking about well over $4,000,000, because you have to factor in the opportunity cost of that $200,000 not growing on the client’s side for all those years.
Naturally, I had no counterargument for that question. It is truly difficult to justify paying an advisor more than $16,600 a month just to manage a portfolio without providing comprehensive financial and tax planning services.
That is why, in this blog post, I want to share a few questions that many people don’t ask themselves every day, particularly for those DIY clients located here in Florida or anywhere across the country.
How much does a 1% AUM fee actually cost a multi-million-dollar investor?
Warren Buffett has a famous quote: “Price is what you pay, value is what you get.” However, from experience, I can tell you that very few people actually know how much they are paying their financial advisor. On top of that, they often don’t know if the amount they are paying is too high because they lack a clear benchmark.
Think about it: when you buy a product at the supermarket, it’s incredibly simple to know exactly what you’re going to pay. But when it comes to financial advisor services, the pricing can be genuinely complex.
First, there is the advisor’s management fee, which averages around 1%. But on top of that, you have to add the internal costs of the funds the advisor invests in, known as the expense ratio. Furthermore, there are insurance products like annuities whose true cost is highly complex to determine; they don’t present themselves as transparent fees but rather as an opportunity cost, the cost of not investing that money elsewhere, where it could grow much more over time.
This is precisely why many of our clients hire us as hourly financial planners. They want us to help them review their portfolios to uncover exactly what they are paying for, verify whether their portfolios align with their goals, and identify opportunities for optimization.
Now, if we go back to Buffett’s logic, for certain clients who can comfortably invest and manage their own portfolios using Index Funds or ETFs, it’s very easy to see that paying a 1% AUM fee makes no sense. It makes even less sense to pay the eventual commissions on high-fee products offered by some advisors. They simply see no value in what they would be paying the financial advisor, since they can do it themselves.
In many cases, our clients prefer to hire us for quarterly check-ins. In those instances, they simply pay for a one-hour session each time. At our firm, that comes out to $300 per session, or $1,200 a year. This is a substantially lower amount than what someone would pay an advisor charging 1% a year on a $2 million portfolio, which would be roughly $20,000. With that same $20,000 budget, you could practically hire an hourly advisor for a weekly session and still only spend $15,600.
However, an hourly financial planner is not the right fit for every single client. For example, if you know that if the markets were to take a sharp downturn or experience a crash, your reaction wouldn’t be the most positive if fear from seeing your balance drop rapidly would push you to make irrational decisions and perhaps sell at the worst possible time then a 1% fee is not nearly as costly as a bad decision like selling when the market is down 20%.
Does the AUM model create a financial conflict of interest?
Charging a percentage on the amount of money being managed will always create an inherent conflict of interest. The reason is simple: if tomorrow you decide you no longer want your advisor to manage your investment portfolio, that advisor instantly loses 100% of that income stream.
But this conflict of interest isn’t limited to cases where the advisor might lose the income generated from managing your assets. Let’s look at the following scenario:
Suppose you have the option to receive a pension and want to know what is best for you: receiving a monthly payment for life, or taking a lump-sum payout. You decide to hire two different professionals to help you evaluate these options:
- A financial planner who charges a 1% AUM fee.
- An hourly financial planner whom you can hire for a one-time consultation.
To make this example completely fair, let’s assume both advisors are CERTIFIED FINANCIAL PLANNER® professionals.
Now, it is undeniable that the hourly financial planner has a much easier time giving an objective opinion without any conflict whatsoever as a pure fiduciary. They know they were hired solely for that analysis, collect their hourly fee, and do not require the client to keep paying them moving forward.
Now let’s look at the AUM-based financial advisor. As part of the analysis, the planner realizes that if you choose the lump-sum option, you could manage, say, $500,000 and collect 1% on it for many years. Plus, they might sell you a financial product they really like and trust, but that adds an extra 0.5% in commissions. This means they would collect about $7,500 every year. If the assets don’t even grow and just stay under management for 10 years, advising the client that the lump-sum is the “best option” could mean $75,000 in revenue for that advisor over that period.
Now look at the comparison for the client, using just one year as a benchmark. You might pay the hourly advisor for 4 to 6 hours of work to run this analysis. At $400 an hour, that’s $2,400 total. After running the numbers, the hourly planner might tell you that your best move is actually to take the lifetime pension—and you might never need to hire them again.
In contrast, the percentage-based advisor might offer to do the analysis for “free.” But how certain can you be that this planner won’t be tempted to suggest the lump-sum option, knowing it could represent $75,000 in revenue over the next decade?
Of course, I am not saying all advisors operate this way. Many professionals enter this industry to genuinely uphold the fiduciary standard and look out for their clients’ best interests. My only point is to show that a financial incentive can exist, and in some cases, it can cloud the judgment of even a CERTIFIED FINANCIAL PLANNER®. This is especially true if the planner is a Fee-Based Advisor who accepts commissions or third-party incentives, rather than a Fee-Only Advisor, who only charges you.
Who is the ideal client for hourly fee-only wealth management?
As we have discussed throughout this article, individuals seeking a second opinion or a one-time consultation for specific, complex questions are ideal clients for an hourly financial planner. These situations include:
- Evaluating a Roth Conversion Strategy: You want to know if a Roth conversion makes sense, how much to convert each year, how that income will impact your tax brackets and IRMAA premiums, which portfolio to draw from first, how to invest those funds within the Roth IRA, and where to find the cash to pay the resulting tax bill.
- The Dedicated DIY Investor: You have always managed your own investments successfully, but feel it would be beneficial to have an investment specialist perform a comprehensive review. You want an unbiased, third-party opinion from someone who isn’t trying to take over your portfolio, but rather conducting an objective risk-versus-reward assessment.
- Transitioning into Retirement: You are about to retire or are already retired and need to know the exact sequence for withdrawing money from your 401(k), traditional IRA, Roth IRA, TSP, or 403(b) plans, as well as which assets to sell first. Hourly financial planners use sophisticated software that runs multiple scenarios to pinpoint your optimal drawdown strategy.
- Optimizing Social Security Timing: You have doubts about the absolute best time to start claiming Social Security for yourself and your spouse. Should you do it at 62, 67, or 70? Should you both claim at the same time, or should one file earlier while the other delays?
- Early Retirement (Pre-65): You want to retire before age 65 and need to know if it’s genuinely feasible, considering you might have to pay a massive amount for private health insurance. You want to enjoy your best years with the financial independence you’ve earned, but you need a planner to stress-test your numbers and map out the exact steps to get there.
- Tax Planning Optimization for W-2 Employees and Investors: You want a comprehensive tax review to see if there are any active tax planning strategies that can minimize your tax burden. You want certainty that you aren’t leaving IRS-approved benefits on the table, such as maximizing a Health Savings Account (HSA), making non-deductible contributions, or properly utilizing a Flexible Spending Account (FSA). A Certified Financial Planner billing hourly acts as an objective consultant to help you evaluate all these options.
- Small Business Owners Overwhelmed by Options: You have watched so many YouTube videos that you’re now confused about which retirement plan to open. Is it better to set up a SEP IRA, a SIMPLE IRA, an Individual/Solo 401(k), or a Cash Balance Plan? A Fee-Only hourly planner can cut through the noise and provide immediate clarity.
As you can see, we could list dozens of scenarios ranging from charitable giving and Incentive Stock Options (ISOs) to Restricted Stock Units (RSUs), deciding whether to buy another rental property, or exploring retiring abroad. Generally speaking, if it has a dollar sign attached to it, an experienced hourly financial planner has likely navigated a similar scenario before and can guide you through it.
If you are looking for a Certified Financial Planner who is strictly Fee-Only, offers hourly services, possesses over 25 years of experience, and handles these exact types of cases every single day, we are here to serve you at Advise Financial. Your guidance comes directly from our founder, Alonso Rodriguez Segarra, CFP®, who has been repeatedly recognized as one of the Top Financial Advisors in the country.
FAQ: AUM vs. Hourly Financial Planning
Why are high-net-worth investors moving away from the AUM fee model?
High-net-worth investors always look for what makes the most financial sense. Many are questioning how much additional value an investment advisor can truly deliver, especially given that SPIVA reports show that over 79% of investment advisors fail to beat a simple index portfolio of Large-Cap assets over the long term. For multi-million-dollar portfolios, investors are realizing it simply doesn’t make sense to surrender 1% of their entire wealth year after year for standard portfolio management.
How much can a millionaire save by using an hourly financial planner instead of AUM?
Let’s look at a straightforward example. A client with a $2 million portfolio paying a 1% AUM fee is spending $20,000 a year. And that doesn’t even account for the compounding technical factors like the fact that this $20,000 leaves your portfolio permanently and stops growing for you.
Now, take the same scenario and apply an hourly financial plan. The initial onboarding and comprehensive plan might cost between $1,800 and $2,100. Moving forward, you might have quarterly one-hour strategy sessions at our Advise Financial rate of $300 per hour. Your total cost for the entire first year would be around $3,300. In the second year, it drops even lower because you only pay for the sessions you actually need. Four quarterly check-ins would equal just $1,200 ($300 x 4). If you only need one annual review session, your cost is $300 versus $20,000.
Do hourly financial planners have conflicts of interest?
Hourly financial planners generally operate with the fewest conflicts of interest in the entire industry. However, a caveat applies: if you hire an hourly planner who is Fee-Based (meaning they can still accept third-party commissions), a conflict still exists because that advisor might use your paid hours to pitch financial or insurance products that pay them a backend commission.
The only way to truly eliminate this conflict is to ensure you hire a Fee-Only CFP®. Because they accept zero commissions or third-party incentives, their judgment remains completely unclouded, allowing them to strictly honor the fiduciary standard and place your interests entirely above their own.
Are all hourly financial planners the same?
In an era flooded with self-proclaimed “financial gurus,” it is vital to remember that having thousands of social media followers does not make someone a qualified specialist. Always verify that you are working with a CERTIFIED FINANCIAL PLANNER®, so you have the peace of mind that comes with hiring a professional who has met rigorous educational, experiential, and ethical standards.
How do I find a fee-only hourly financial planner?
At Advise Financial, we would be delighted to serve you virtually from Palm Beach County, Florida. If you are looking to explore options for an hourly CFP®, you can also search the XYPN Network and apply filters for hourly services by clicking here.
Serving high-net-worth families in Palm Beach, Boca Raton, and surrounding areas with fee-only financial planning.
