Financial Advisor Fees: What You're Really Paying For
I recently sat down with Ryan Hughes fromBull Oak, one of the financial advisors on Sam's List, to chat through some common questions I get from people who are curious about working with a financial advisor.
I just wanted to understand what actually matters when you're evaluating advisors, especially if you're someone with growing wealth, a big career move ahead, or just a lot of financial decisions on your plate.
We covered everything from fees to trust to why so many people hesitate to get help, even when they probably should. I'm sharing what I learned in case you're in that weird space of knowing youshouldtalk to someone… but not knowing how to start or what to ask.
The Three Main Financial Advisor Fee Models
In the financial advisory world, there are three primary fee structures that you'll encounter:
- Fee-only advisors: Fiduciaries regulated by the SEC who charge either flat fees, hourly rates, or a percentage of assets under management (AUM).
- Fee-based advisors: Partnered with brokerages like Merrill Lynch or Morgan Stanley and receive commissions, regulated by FINRA.
- Dual-registered advisors: Registered with both FINRA and SEC, allowing them to operate under either model depending on the services provided.
Each model has its strengths and serves different client needs.
Bull Oak, Ryan's firm, operates under the fee-only model, which emphasizes transparency in how advisors are compensated. He explained that while the industry has traditionally been commission-based, there's been significant growth in fee-only advisory services over the past couple of decades, offering clients more options based on their preferences and circumstances.
How Fee-Only Advisors Structure Their Fees
Bull Oakuses a hybrid approach that's pretty interesting from a fee-only advisor:
- Annual flat financial planning fee: Starting at $12,350. This fee can include tax prep, filing, and planning.
- Optional annual asset management fee: 0.35% on assets above $1 million.
To simplify things for my non-financial brain, Ryan walked me through a practical example.
For a client with $5 million in assets, his firm would charge the financial planning fee (let's say $15,500) plus the asset management fee of 0.35% on the $4 million above the first million threshold. This calculation yields about $14,000 for portfolio management, bringing the total annual fee to $29,500.
But what does that actually mean in terms of value?
Ryan explained that he helps clients understand this by converting it back to a percentage of their total assets. In this case, $29,500 divided by $5 million equals about 0.59% or 59 basis points. This perspective helps clients compare different fee structures across the industry and better understand what they're actually paying for the complete service.
If we take it a step further and translate this to an hourly rate, the math gets interesting. Based on industry-wide research, Ryan shared that the average advisor spends about 17 hours per year in direct client activity for each client, and the average hourly rate for advisors is about $600 per hour. For our $5 million example, the $29,500 annual fee divided by 17 hours would equal roughly $1,735 per hour, which seems high.
Bull Oak, however, typically spends about 29 hours per year per client (which includes tax prep and filing). Furthermore, Ryan explained that direct client activity only represents about 60% of an advisor's work. The rest includes back-office tasks, research, investment model management, and other activities that benefit clients indirectly. So the actual number is closer to 48 hours per year, not 29. When you account for all the work, the effective hourly rate comes closer to $610 per hour—comparable to what you might pay for other specialized professional services like attorneys or CPAs.
This breakdown is super helpful because so many people (myself included!) get caught up in the AUM percentage debate.
When you hear “1% of assets,” you think, "Wait, that sounds expensive. Why would I pay that?"
But Ryan's point is that whether you're paying hourly, a flat retainer, or a percentage of assets, it typically works out to roughly the same effective rate when you break it down.
The real question isn't which payment model is cheaper. It's whether you're getting value from those hours of expertise, and whether the fee structure aligns with your personal situation and preferences.
Who Chooses Which Fee Structure?
Another thing we talked about was how different client types gravitate toward different fee models:
- Beginners: People who are just starting their financial journey tend to be more comfortable with the AUM (Assets Under Management) model. The total AUM fee may be cheaper than hourly or retainer models.
- High-income but not ultra-wealthy: Clients in the $1-10 million range often prefer retainer-based arrangements and tend to question AUM fees more critically, making the retainer model more attractive.
- High-net-worth ($10M+): Once clients reach the $10+ million level, they often become less critical to AUM models again. The overall fee is still important, but at this level, clients tend to focus less on the fee structure and more on the quality and depth of advice they're receiving.
This pattern makes sense when you think about it. As the stakes get higher, the value of financial advice becomes more apparent, potentially outweighing concerns about fee structure.
The True Hourly Rate of Financial Advisors
Regardless of fee structure, most advisors effectively earn a similar amount, typically around $300-350 per hour. The average rate per hour varies based on the quality of the advisor and their specialty, just as you would find with attorneys and accountants. This was one of Ryan's most eye-opening points.
"One thing that I've realized is no matter what fee model you have with the client, whether it is AUM, whether it is hourly based, whether it is retainer based, you're going to get somewhere near a reasonable hourly rate, whether it is $300, $500, or even $1,000 per hour," Ryan explained.
This perspective shifts the conversation from "which fee model is cheaper" to "what am I actually getting for the cost?"
What this means for you: When clients fixate on fee percentages (like 1% of AUM vs. a flat fee), they're often missing that most advisory relationships, regardless of fee structure, end up costing roughly the same when calculated as an hourly rate.
The real question becomes whether you're getting valuable service for those hours.
As Ryan put it: "At that point, it becomes equivalent. And so now you have to look at the firm’s capabilities. What's the capability of this team? Do they seem reliable? Are they sharp? Can I really trust this person to give me good, sound advice?"
Red Flags When Looking for a Financial Advisor
Ryan told me that they don’t accept all clients who walk through the door. They interview potential clients in the same way the potential client interviews them. They want to ensure that the relationship is a good fit.
When I asked Ryan about red flags when interviewing these individuals, his response was pretty immediate:
"One big red flag for us is somebody who is in a hurry, when they need to make a decision now. ‘Our company is going public next month and I need to do something to save on taxes.’ Or, ‘I need to file our taxes before April 15th’ and it’s March 15th. I've never had a really good client become a client that way. There is very little chance that this becomes a long-term, successful relationship. I've had plenty of bad clients become a client that way."
So don't be that guy...
When Should You Hire a Financial Advisor?
I asked Ryan for his elevator pitch on when someone should hire a financial advisor. His response was simple & powerful:
"When the stakes are really high. We get our best clients when they realize that they need sound advice. They’ve moved past the question of, ‘Do I need an advisor?’ and onto the question of, ‘Which advisor do I hire?” These individuals are ready to move forward when they realize that the stakes are too high for any type of mistake that they might make, whether that's investing, whether that's, should I retire, whether that's, what do I do with the proceeds after an exit, or whatever. For them, the stakes are too high for them to mess it up. That's when you should seek planning help."
The Bottom Line on Financial Advisor Fees
After speaking with Ryan, I've come to realize that the fee structure isn't just about cost.
It's about alignment of interests. Fee-only advisors typically have fewer conflicts of interest, while commission-based models might create incentives that aren't perfectly aligned with your needs.
The right fee structure depends on your personal situation, but understanding how your advisor gets paid is essential to establishing trust and ensuring you're getting value for your money.
Whether you're considering a financial advisor for the first time or reassessing your current arrangement, looking beyond the fee percentage to understand the actual dollar amount and what services you receive for that cost will help you make a more informed decision.
Want to Learn More About Bull Oak?
If you're interested in speaking with Ryan and his team atBull Oak, you can find them on Sam's List. Bull Oak is a San Diego-based fiduciary financial advisor that provides comprehensive services, including investment management, financial planning, tax strategy, tax preparation and filing, and estate planning.
Their approach is refreshingly different. They believe in data-driven planning and pragmatic investing rather than treating clients like products on an assembly line. As Ryan shared during our conversation, the best time to seek planning help is "when the stakes are too high" to manage everything yourself.
Connect with Bull Oak through Sam's Listand see what a fiduciary financial advisor with a transparent fee structure can accomplish for you!
Author: Kimi, Co-founder of Sam's List
Kimi writes about what she's learning while building Sam's List and shares honest takeaways from her conversations with accountants and financial advisors across the country. None of this is financial advice—just the stuff most people wish someone told them sooner.
