How to Evaluate the Performance of an Advisor That Charges AUM Fees

Are all AUM fees bad, and should you thumb your nose at any advisor that charges one?

There’s a lot of marketing and financial talking heads out there that aggressively call out assets under management (AUM) fees and how bad they are for investors.

Are they telling the truth? Or are their hot takes full of hot air?

I’ll provide this framework for evaluating an advisory firm (like ours) that charges an AUM fee for investment management so you can assess their performance.

What is your performance net of fees?

I’m going to be human for a second. There’s a Securities and Exchange Commission (SEC) Marketing Rule for advisory firms that are regulated by the SEC (like SLP Wealth is). It’s an important protection for consumers, but it’s also a ton of work to comply with and accurately show everything that needs to be shown.

So yes, I’m going to save myself a ton of work in terms of compliance disclosures I’d need to do in this article if I shared our model portfolio performance, and suggest that you ask a prospective advisory firm you’re looking to hire what the performance net of their fees is.

If you want to know how our models have done, it’s important to note that we overweight international and small-cap value in our portfolios. I’ll let you look up performance for those asset classes and draw your own conclusions about what that means for our performance since we’ve existed as of 2023.

Performance net of fees is a valid question. The thing to note for a consumer is that math matters here. A lower AUM fee will have a lower impact on performance, obviously. Lower expense ratios of the model portfolio will also be better, all things equal.

The problem is that AUM fees and performance really aren’t the best question to be asking. It’s the boring stuff that investors overlook.

I’ll cover these points next.

Try SLP Wealth Risk-Free (with a Discount, Too)

The behavioral finance factors that cost more than a high AUM fee

When checking your DIY investing habits, a few rules of thumb apply: Handle the following well, and you'll come out ahead. Handle them poorly, and the cost can rival (or beat) even the highest AUM fees:

Investing in a low-cost way by choosing the lowest-fee investments
Avoiding market timing, including avoiding increasing and decreasing portfolio allocations to different asset classes after a streak of hot performance
Locating asset classes in the correct retirement or non-retirement account to maximize tax efficiency
Tax loss harvesting to offset future sales of stock or funds when you go to use your money (assuming it’s not all to be left to your heirs)
Managing cost basis by getting the highest gain positions out of your portfolio through charitable giving and by selecting the lowest gain positions to liquidate when selling
Rebalancing regularly in a tax-efficient way to keep risk in check, which also helps “buy low and sell high” over time as various asset classes have streaks of hot performance
Avoiding missed opportunities, like forgetting to max out all retirement accounts, forgetting to use flexible spending account (FSA) money, forgetting to increase brokerage account allocations, etc.

Vanguard has a paper that estimates the collective cost of getting these wrong could easily be more than 3% over time.

Why do AUM fees get such a bad reputation?

If you’re using a high-fee advisor who charges 1.5% of your portfolio as a management fee and uses 1% expense ratio exchange-traded funds (ETFs) and mutual funds, then that’s a collective cost of 2.5% of your money each year.

There could still be net value added if they helped you avoid all the mistakes above, but some investors don’t make all of those mistakes. For example, some investors might be able to rebalance and identify low-cost ETFs just fine on their own.

They still might be prone to mistakes on things like cost basis and forgetting to tax-loss harvest, but when the potential mistakes are similar to the fee, then many investors assume they should just manage their money on their own.

Where DIY investors go wrong

The problem is that investors vastly overestimate their own abilities to manage their own money as well as a professional would. It’s easy for investors to add a huge slice of international stocks to their portfolio after two years of outperformance and not even realize they’re engaging in performance chasing.

It’s easy for individual investors to forget to do important tasks like max out Roth IRAs or tax-loss harvest to offset future gains.

I’ve had a lot of smart physicians and dentists tell me they see no point in tax-loss harvesting because it would only save them taxes on $3,000 of income per year.

That’s just the limit for offsetting active income. Unless these doctors plan not to use any of their money at all, they clearly have no understanding of tax-loss harvesting or its value. Thus they’re giving away future taxes to the government that they wouldn’t have to if they were more aware and implemented this in their own investment management.

Why some advisors earn the bad rap

So why do AUM fees get a bad rap at times? Because there’s plenty of average to below-average advisors who don’t help investors avoid the mistakes above. They might check in once a year and only select a model portfolio, which may not even be that personalized to the investor’s circumstances.

And if you’re earning 1.5% advisory fees for the investment management and 1% for mutual fund or ETF expense ratios, that’s a very profitable business.

Saying all AUM fees are bad is like saying all percentage-based fees that contractors charge are bad.

The reality is that some contractors are lousy and charge much higher fees than they should because their work isn’t good. And some contractors charge reasonable fees and provide excellent service and value.

So I’d suggest that what talking heads are doing is painting all advisors as if they all charge 1.5% on a $2 million portfolio and do little to nothing. That’s not most advisors.

AUM vs. flat-fee marketing is sometimes dishonest

What about firms that charge flat fees? Are flat fees a better option that provide better value?

I saw one firm recently that advertised the nobility of flat fees over AUM fees. It’s raised its fees aggressively, at one point laid off half of its staff, and has raised hundreds of millions from investors who are looking for a big exit.

It’s not pushing the narrative that flat fees are better than AUM fees because it's noble of heart. It's pushing that narrative because the client base it serves has lower AUM than the average high-net-worth customer, so flat fees are more advantageous for business profitability (at least that’s my opinion).

Another firm I noticed that was pushing the virtue of flat fees advertised their fee versus an AUM fee, and it modeled it out for 20 years.

It showed the flat fee as unchanged after 20 years.

That’s ridiculous, unless it plans on not providing any cost-of-living adjustments to employees. And perhaps it assumes that insurance and software expenses in two decades will also be unchanged. And that somehow maybe AI will replace all of their advisors or allow each advisor to become a super-advisor and advise 500 households instead of 200 while somehow having the advisor not need to work more hours per year.

This same firm that pooh-poohed AUM fees also advertised a flat fee that increased as your AUM increased.

So if I charge $5,000 for accounts up to $500,000, $7,500 for $500,000 to $1 million, and $12,500 for $1 million to $2 million, that’s basically an AUM fee.

And as we’re about to find out, many advisory firms lower their fees as your wealth grows.

Tiered AUM fees mean you pay less as your wealth grows

Many firms, such as SLP Wealth (the one that I co-founded), charge lower percentages on portfolios they manage as a client's wealth increases.

Ours as of July 2026 starts at 0.75% and scales down to 0.25% for the largest accounts. You can check out our ADV to see the details.

One common objection to AUM fees is, “I don’t want to be paying a percentage of my money when I’m richer for the same amount of work.”

That doesn’t make sense on its face, because almost all of these investors pay a percent of their money if they’re investing in index funds. It’s just that the percentage is low.

Active management doesn’t tend to add enough value to justify the higher fees that are charged. So the issue with active management is not that it’s active versus passive. It’s about the value received versus the fee charged.

So for investment management to add value, be it a flat fee, an AUM fee, or fees paid in chickens, walnuts, and fresh milk from a wonderful farmer client, there has to be value added for what is paid.

Investors have correctly deduced that for a lot of big fee firms that have fancy offices and fancy brochures, the value received for the value paid math is off.

Make a math-based decision on whether AUM fees are bad for you (or not)

I’d humbly suggest that you look at your own investment performance over the last five years.

How big is your Roth IRA? Did you do tax-loss harvesting? Do you have carryforward losses on Schedule D to use for the future? If you give to charity, do you have a donor-advised fund? And do you get the largest gains out of your portfolio through specific identification of shares where you get rid of the biggest gains by donating those positions to charity? Do you know what your cost basis method is on all of your accounts? If you have a large allocation to growth or US stocks, have you kept that allocation? Or are you having doubts about the allocation, or have you changed that allocation recently?

If any of those questions aren’t answered confidently, then it’s easy to see how an advisor that charges an AUM fee could add enough value to be worth it. But you should do your due diligence, ask the tough questions, and let the math do the talking instead of the talking heads or high-dollar venture capital-backed firms trying to push a vibes-based narrative about certain fees being better than other types of fees.

What matters is value received for dollars paid. And I hope you find the best match out there for you. If you’re a SHENRY (six-figure student loan borrower with six-figure household income), then SLP Wealth could be a good fit for you. Check us out and give it a shot for 30 days risk-free here.