An August 2024 Harris poll called the “Americans and Billionaires Survey” indicated that 6 in 10 Americans seek to attain great wealth in their lifetime, and they see entrepreneurship (42%) and stock trading or investing (39%) as the fastest ways to achieve significant wealth. Younger generations are aspiring to reach higher levels of wealth than older generations, with 7 in 10 millennials aspiring to become billionaires, closely followed by Gen Z. Previously, professional sports success was seen as the fastest path to great wealth, but up-and-coming generations now view becoming an influencer or content creator as the more lucrative path. Additionally, 57% of Americans believe that the development of artificial intelligence (AI) technology will help more people become billionaires in the future.
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Despite those ambitions, a 2023 Harris Research poll commissioned by Empower found that 71% of Americans have bought a lottery ticket and 24% of millennials have consulted a fortune teller. A 2024 study by YouGov revealed that just 27% of Americans are currently using a financial advisor. Bridging that gap is the biggest hurdle to merging aspirations and fulfilled dreams.
A key hurdle for most individuals to finding a financial advisor is connecting to one that they can easily communicate with and most importantly, trust. Approximately 60% of Americans say trust is their top decision factor, according to the same poll. Among higher-income households, this number rises to 68%.
The cost of services comes in second in priority with almost 50% of Americans concerned about fees. But, fees are an important consideration. Excessive fees can erode financial returns, highlighting the importance of not only effectively choosing smart investments, but also managing costs.
While there is a growing trend toward seeking professional financial guidance, a considerable number of individuals still continue to rely on alternative sources or manage their finances independently. We’re getting smarter with our money — it’s just not always through traditional advisors. Many digital options have come to the market, mirroring the confidence and ease that younger generations feel with AI.
However, demand for human advisors is strong and growing as Americans become wealthier and face more complex needs. In February 2025, McKinsey found that clients are increasingly willing to pay a premium to get direct, personalized human advice over digital options. And, firms are ramping up a broader range of services to capitalize upon this sentiment. Yet, the profession is aging rapidly and about 37% of the advisors are ready to retire or leave the field, creating a shortfall of as many as 110,000 professionals by 2034. For consumers, this is a double-edged sword as firms compete to retain talent. This supply crunch may drive advisory fees even higher. Unfortunately, every percentage point increase in fees is a cut against your future savings.
Regulatory efforts by Congress, the Securities and Exchange Commission and the Department of Labor to increase fee transparency and reinforce fiduciary standards have largely stalled, especially following the Supreme Court’s 2024 landmark Chevron decision. Fortunately, financial literacy is also rising, emboldening more individuals to manage their own money.
Reliable guidance is more crucial than ever. With an understanding of these six topics, starting the right conversation with a prospective advisor or digital platform becomes far easier:
— Human or robo advisors.
— Compensation structures.
— Financial advisor fees vs. investment product fees.
— Billing and ongoing invoicing.
— Deductibility.
— Transparency.
— Starting the conversation.
Human or Robo Advisors
When we think of professional financial advisors, human advisors often come to mind first. However, artificial intelligence has opened new avenues for expert guidance, with AI-driven advice now capable of meeting routine planning needs.
Robo-advisory services enable financial institutions and fintech entrepreneurial businesses to profitably capture smaller accounts. Often viewed as the most affordable professional option, robo advisors appeal to younger investors just starting out, as well as experienced and DIY investors looking for cost-effective solutions. Robo advisors are ideal for those with straightforward needs and a less emotional approach to risk.
Currently, robo advisors rely on standardized investment models, which may fall short for some clients. For those with more nuanced situations or who prefer personalized guidance, the added fees for advanced robo-advisory services can rival — or even exceed — those of human advisors. In these cases, personalized human advice often offers more comprehensive support at comparable costs.
The rapid evolution of proprietary, predictive AI platforms may reshape the investment landscape significantly in the coming years. At the same time, human advisors are harnessing AI to streamline their back office operations in order to more directly focus on their clients.
Compensation Structures
Financial advice is not free. If you are not writing a check directly to a human or robo advisor, then it is important for you to know how these resources are being compensated for their advice and recommendations. It is especially important to understand that there is no superior compensation method. Advisors tout their preferred method as favorably as possible, but every compensation structure has its virtues and drawbacks.
Fee-only: Registered investment advisors, or RIAs, are compensated through a fee based on their advice. The assets under management, or AUM, model is the industry’s most prevalent fee-only structure. This model aligns well for clients who are still accumulating assets, in contrast to retirement clients taking distributions for their living expenses.
Key facts to know about AUM fees:
— They are calculated as a percentage of the assets they manage and are payable on a yearly, quarterly or monthly basis as long as the advisor has a relationship with the client.
— A client’s portfolio value will change on a regular basis. Therefore, the assets will be revalued each year, reflecting the additions or subtractions from market returns, new investments, distributions and other factors. So, while the AUM percentage will remain the same, the actual fee will vary based on the increase or decrease in managed assets. A few advisors are experimenting with an average daily account value in order to smooth out major moves in the market.
— Wealth management fees across the U.S. have been consistent for many years, with the average human AUM fee at 1.02% for a client with $1 million in assets. In this case, the client would pay an annual fee for a $1 million portfolio of $10,200.
— AUM fees typically decrease as account size increases, and advisors may negotiate their fee with their most affluent clients.
— Advisors will usually establish a minimum account size, as small accounts are labor-intensive and challenging to manage profitably. This can be a barrier for younger or newer investors who have not accumulated significant assets.
— Robo advisors follow the fee-only compensation structure and may cost as little as 0.2% to 0.35% for standardized models.
Clients should not hesitate to ask for percentages to be converted to actual dollar amounts. All advisor sources must disclose their AUM fee structure and the benefits it covers at the beginning of the client relationship in a Form ADV Part 2A. This document is regularly updated and must be easily accessible to the client throughout their relationship.
Performance-based fee: In this method, an additional fee is added to the standard AUM fee when a predetermined benchmark has been achieved.
Commissions: Broker-dealer representatives may earn commissions from the sales of products such as mutual funds, insurance policies or annuities. The firm that offers the products compensates the advisor for recommending its financial solutions. The client will not receive a regular bill, but will pay for the representative’s expertise within the product itself or in stiff fees to exit the product early. Product costs may be referred to as expenses, loads or surrender charges. Percentages tend to be higher than an annual AUM fee, but payable for a shorter duration.
Product manufacturers go to great lengths to make complex products easier to understand. Internal costs are detailed in a “prospectus” given to the client at the beginning of the product conversation. Even though the documents are lengthy and rather dry to read, they are important to study carefully. The prospectus is updated annually with a required notice to the client.
Hybrid/fee-based: When combining AUM fees and commissions, an advisor must take extra time to thoroughly explain which standard of care applies to each part of the recommendation.
Flat or hourly fees: This fee structure is appealing to younger clients with fewer assets and active retirees drawing down their investments to pay for their living expenses. They are also attractive for clients who feel more comfortable with a consistent fee schedule instead of one that changes as their assets rise and fall.
Project fees: These fees align well with unique situations, such as saving for a child’s wedding, where the timeframe is a much shorter and more specific duration than long-term life events such as retirement. They may also cover strategic documents, such as a financial plan, created for retirement, estate transfer or a business exit strategy.
Wrapped fees: Typically used in employer-sponsored plans, such as a 401(k), where the advisor’s compensation is embedded in the plan costs.
Financial Advisor Fees vs. Investment Product Fees
When a professional advisory source makes financial recommendations involving products, there is an additional product fee payable in addition to the AUM fee. Financial advisor fees compensate the advisory resource for their expertise, while product fees cover investment costs. A client may pay a 1% advisor fee and a 1% product fee, for a 2% total fee. A client is not paying twice for the same benefit; rather, they are paying all parties to the transaction.
Billing and Ongoing Invoices
Advisory fees are billed for as long as the relationship lasts. Many practitioners calculate their invoices manually. This can lead to errors, especially if the advisor has negotiated fees, revised their fee structure or offers multiple fee structures. To minimize paperwork, some advisors opt for annual invoicing. However, this approach can unintentionally increase the risk of errors if the firm is processing a high volume of invoices, especially at year-end. This approach may also restrict clients whose budgets are better aligned with a quarterly or semiannual payment schedule.
Investment product fees are only payable for the period that the client holds the product in their portfolio. These fees are deducted directly from investment accounts, so clients aren’t consistently reminded to review their statements to confirm they’re being charged the correct amount.
Regulators have increased oversight to prevent advisors from overcharging clients, even unintentionally. It’s essential for advisory firms to ensure their invoices align with the fees outlined in their ADV documents. When errors occur, those funds are removed from the investment, causing clients to miss out on potential market returns on the discrepancy.
Being aware of the fees you’re paying for services can help you save both money and opportunity costs. If a client suspects they were charged incorrectly, they have every right to request an account reconciliation, and an advisor’s hesitation can be considered a potential red flag.
Deductibility
During the first Trump administration, Congress approved the 2017 Tax Cuts and Jobs Act, the largest tax code overhaul in nearly three decades. The individual deductibility for miscellaneous items, such as fees for financial advice, IRA custodial fees and accounting fees, was eliminated. Instead, taxpayers received more generous and inflation-adjusted standard deduction thresholds, decreasing the need for many taxpayers to itemize their expenses. The TCJA was due to sunset in 2025. Instead, the One Big Beautiful Bill Act (OBBBA) passed in July 2025 permanently repeals certain miscellaneous itemized deductions, including investment advisory fees.
Transparency
Good advisors provide clear answers when asked about their compensation, viewing this discussion as a chance to highlight their value, unique strengths and firm differentiators. Advisors who operate under an AUM or asset-based compensation model often emphasize the alignment of interests in growing assets, which helps avoid potential ethical conflicts.
For clients focused on asset growth, the AUM model can closely match an advisor’s expertise. However, retiring clients may shift their focus to principal management and income distribution to support living expenses. They might also consider large purchases, such as extended vacations or recreational vehicles, and have growing interests in life and long-term-care insurance. In these situations, the AUM model may no longer be the best fit for the client or the advisor.
Clients should feel comfortable discussing which fee structure best suits their needs and keeps their advisor engaged with their account. A perceptive advisor may refer a client to another professional if they lack a compatible compensation structure. While clients might initially feel they are being passed along, this is actually a hallmark of the fiduciary standard, as the first advisor is willing to forgo ongoing compensation to prioritize the client’s best interests.
Starting the Conversation
At the end of the day, a client must find an advisor that charges in a way that best aligns with their investment needs, their reliance on the advisor and their own financial acumen or lack thereof. When evaluating an advisor, consider asking:
— “What’s my total cost for working with you over the next year, and what will I receive in return?”
— “If you only do better when my account grows, what is your plan if the market drops unexpectedly?”
— “I understand that you will make a commission on this sale. Will your fee structure incentivize you to grow and manage my funds on a long-term basis?”
Once the client understands and accepts how they are paying for professional services, it is then up to the advisor to ensure that the value they bring to the table exceeds the compensation being rendered.
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What to Know About Financial Advisor Fees and Costs originally appeared on usnews.com
Update 07/28/25: This story was published at an earlier date and has been updated with new information.
