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Is a 1% fee too much?

One percent of $500,000 is $5,000 a year. Too much is that dollar amount against the work, not the percent alone. Read where the rate steps down.

The short answer

One percent a year is a quote you will hear. It is not a national price, and it is not a number we measured. On a stated 1% rate, $250,000 costs $2,500 this year, $500,000 costs $5,000, $1,000,000 costs $10,000, and $2,000,000 costs $20,000. Your brochure may use another rate. The percent can also step down at a higher balance. Too much is the dollar amount against the work you will actually get, not the percent sitting alone on a slide.

The cost page is the full menu of fee methods. This page is only the judgment on a percent-of-assets quote.

Balance1% for one yearWhat to ask
$250,000$2,500Is most of this a plan, or a portfolio I could hold myself?
$500,000$5,000What is inside the fee this year, in a list?
$1,000,000$10,000Where does the rate step down, and on which dollars?
$2,000,000$20,000Is the work different at this balance, or only the bill?

These rows are arithmetic. They are not averages.

What to do

  1. Get the rate and the breakpoints from the brochure, not from a commercial. Open the firm on Search and confirm Item 5E(1) is Yes if they charge a percent of assets. The box is the method. The schedule is the price.
  2. Apply the schedule to your balance. Watch the shape of the step-down. A tier charges the lower rate only on dollars above the line. A cliff charges the lower rate on the whole account once you cross the line. The brochure says which. If the sentence is muddy, ask them to compute your bill both ways and mark the one in the contract.
  3. Put the annual dollars next to the work. A written retirement-income plan, tax-lot decisions, and a year of rebalancing are a different product from "we hold the same target-date fund you already picked." The second product is discussed on the target-date page.
  4. Ask a flat-fee or hourly firm to price that same list in dollars. You are comparing bills for one job, not collecting logos. Hourly vs AUM and flat fee vs AUM are the other two shapes.
  5. Run the rate through the advisor fee calculator. Include a fund expense only if you will pay it on top of the advice fee. Paying both is normal when the fund charges an expense ratio and the adviser charges a percent. Name both numbers.
  6. Decide with the dollar figure in the email, not the percent in the headline. Reply with: "Confirm my fee is $X this year on this balance, billed [in advance / after], taken from the account or invoiced."

What to look for on Best Investors

  • Item 5E(1). A Yes means a percent of assets is one of their methods. It does not mean your rate is 1%.
  • The brochure fee schedule. This is the page with breakpoints, minimum fees, and whether cash in the account is included in the bill. A minimum fee can make the real rate higher than 1% on a small balance. How much money do I need? covers minimums without inventing one.
  • Item 5I wrap fees, if it is Yes. A wrap can bundle advice and trading costs into one percent-like number. Ask what the wrap includes so you do not compare it to a bare advice fee.
  • Item 5E(5) commissions. A percent quote plus a product commission is two prices. See fee-only vs fee-based.

Common mistakes

  • Calling 1% "the going rate." We do not have a survey on this page. You have a quote. Judge the quote.
  • Forgetting that the percent repeats. $5,000 this year is not the cost of the relationship. Next year is another bill if you stay and the agreement stays.
  • Ignoring a minimum fee. One percent of a small account can be less than the firm's stated minimum. The invoice will use the minimum.
  • Comparing a 1% advice fee with a fund expense ratio as if they were the same line. Ask whether you pay the fund, the adviser, or both.
  • Treating a step-down as a discount on every dollar. Read whether the lower rate hits the whole balance or only the slice above the line.

Related questions

Is 1% of a million dollars the same deal as 1% of $250,000?

The rate matches. The dollars do not, and the work may not either. Ask what they will do for $10,000 that they will not do for $2,500. If the list is the same, the larger account is paying more for the same job.

What if the fee comes out of the account?

You still pay it. You may not write a check, so it is easy to miss. The custodian statement should show the debit. Confirm the amount against the schedule once a year.

Is a lower percent always better?

A lower percent on a vague scope can cost more than a higher percent with a written list of work, or more than a flat fee for a single plan. Compare dollars and the list. Is a financial advisor worth it? is the decision test.

Do breakpoints apply automatically?

Only if the contract says so. Ask whether the firm reviews the rate when the balance crosses a line, or whether you have to ask. Get the answer in writing.

Limits

This page does not say that 1% is fair or unfair for your household. It is not investment or tax advice, and Best Investors is not the SEC.

The dollar rows are 1% of the balance in that row. They are not a typical fee, not a median, and not a forecast of your bill. The firm sets the rate in the brochure and the agreement.

If our filing copy and IAPD disagree, use IAPD.

Sources

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