Flat fee or percentage of assets: which costs a doctor less?

The advisor charges a yearly rate on the value of the accounts they manage, usually taken from the account in installments, often each quarter. If your balance grows, the fee in dollars grows with it. If markets fall, it falls too.

Some firms use a sliding scale, with a lower rate on larger amounts. Some also set a minimum yearly fee, which makes the rate on a small balance higher than the one quoted. The firm's Form ADV Part 2A will say.

You pay a set amount, monthly or yearly, that doesn't depend on your balance. Ask whether there's also a one-time fee to build your first plan, and whether the fee is lower while you're in training.

A flat fee may or may not include managing your investments. Some flat-fee planners advise and leave the investing to you; others manage the accounts too. Ask which.

For example, at 0.50% a year a $100,000 balance pays $500 a year, and a $200,000 balance pays $1,000. A flat fee would be the same at both.

To find the balance where the two cost the same, divide the flat fee for a year by the percentage rate. Below that balance, the percentage costs less. Above it, the flat fee does. Against a 0.50% fee, that point is 200 times the yearly flat fee; against 0.25%, it's 400 times.

Cost is one difference, not the only one. Two advisors at the same price can offer very different work, so compare what each fee includes before you compare the numbers.

Over many years, yes, because money paid in fees isn't there to grow. The SEC shows it with a $100,000 investment growing 4% a year for 20 years: with a 0.25% yearly fee it ends at about $208,000, with 0.50% at about $198,000, and with 1.00% at about $179,000.

The same is true of a flat fee. What counts is the dollars you pay each year and what they would have earned if they'd stayed invested.

Funds charge their own yearly expenses, taken inside the fund and listed in its prospectus as the expense ratio. Accounts can carry trading, transfer, wire or maintenance fees. These apply whichever way you pay the advisor, so ask for all of them in writing.

We charge a percentage of assets: 0.25% a year on accounts up to $25,000 and 0.50% a year on accounts over $25,000, billed quarterly and pro rata, so a partial quarter is charged only for the part you were a client. There's no minimum account size. Fund expenses and some account fees can also apply.

Because it's a percentage, it's small in dollars while your balance is small and grows as your balance grows. At a large enough balance, a flat fee can cost less. The details are on Fees & pricing and in our Form CRS.