By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
A reasonable advisory fee is one you can state as a dollar figure per year, that matches the work actually being done, and that does not rise just because your portfolio went up. Advisers charge in four ways: a percentage of assets they manage, a flat annual fee, an hourly rate, or commissions on products sold. A registered investment adviser has to disclose its fee schedule in its Form ADV brochure, including whether the fees are negotiable, so you do not have to guess.
For a California or Washington household earning $750,000 to $3 million, the pricing model matters more than the headline rate. The same percentage that looks small on a $500,000 account becomes a five-figure bill on $3 million, and it keeps growing with your RSUs and 401(k) balances whether or not the work gets harder.
The four ways advisers are paid, and what each one rewards
| Model | How it is quoted | What it tends to reward | Watch for |
|---|---|---|---|
| Asset-based (AUM) | A percentage of assets under management per year, often billed quarterly | Gathering more of your assets under the adviser’s control | Fees that rise with markets and RSU vesting even when the work does not change |
| Flat annual fee | A fixed dollar amount per year | Scope of work, not account size | What is actually included (tax projections, equity comp, estate coordination) |
| Hourly or project | An hourly rate or a one-time project price | Answering a defined question | No one watching your plan between projects |
| Commission | Paid by the product provider when you buy insurance, annuities or some funds | Product sales | Advice that happens to point to products that pay |
Many firms mix these. An adviser can charge an asset-based fee and also earn commissions on securities or other investment products it sells. Form ADV Part 2A, Item 5.E requires the adviser to disclose that if it happens, and Item 5.C requires it to describe other costs you pay on top, such as custodian fees, fund expenses and brokerage costs (SEC Form ADV Part 2 instructions).
Worked example: three proposals for a $1.1M Bay Area household
Assumptions (illustrative, not market quotes): a physician and a Genentech scientist in San Mateo County with $1.1 million of combined W-2 income and two children, ages 4 and 8. Investable assets of $3.0 million: $1.2 million in a taxable brokerage account, $1.1 million across two 401(k)s, $500,000 of vested company stock from RSUs, and $200,000 in 529 plans.
- Proposal A, asset-based: a hypothetical 1.0% on all $3.0 million. Year one cost: $30,000.
- Proposal B, tiered asset-based: a hypothetical 1.0% on the first $1 million and 0.75% on the next $2 million. Year one cost: $10,000 plus $15,000, so $25,000.
- Proposal C, flat fee: a hypothetical $24,000 per year, covering investments, annual tax projections, RSU sale planning and estate coordination.
In year one the three are close. The difference shows up over time. Assume the portfolio earns a hypothetical 6% a year before fees for 20 years, with no new savings:
- Under Proposal A, the 1.0% fee lowers the net return to about 5%. $3.0 million grows to about $7.96 million ($3,000,000 x 1.05^20).
- Under Proposal C, the portfolio grows at 6% and $24,000 is taken out at the end of each year. It ends at about $8.74 million ($3,000,000 x 1.06^20, minus $24,000 x 36.79, the 20-year annuity factor at 6%).
That gap is roughly $780,000 over 20 years on the same investments. In year 20 alone, Proposal A’s fee is about $76,000 (1.0% of an account near $7.6 million), two and a half times the year-one bill, for work that is not two and a half times harder. Real results depend on returns, savings, and whether a flat fee rises with inflation, but the pattern holds: asset-based fees scale with your wealth, flat fees scale with the work.
What “reasonable” looks like at this income level
A fee is reasonable when you can answer yes to these five questions:
- Can you state it in dollars? Ask for the expected fee in dollars for this year and at your projected balance in five years, not just a percentage.
- Is the scope written down? For a W-2 family with equity pay, the work that moves the needle is usually tax planning around RSU vests and ESPP sales, backdoor and mega backdoor Roth contributions, 529 funding, and estate documents and guardianship for young children. If the fee covers only choosing funds, compare it against what an index fund costs you on your own.
- Which assets does it apply to? Some advisers charge a percentage on 401(k) balances they cannot trade, or on concentrated company stock they are advising you to hold. Ask whether each account is in or out.
- Is the adviser fee-only? A fee-only adviser is paid only by you. Form ADV Item 5.E requires disclosure if the adviser or its staff earn commissions on securities sales (SEC Form ADV Part 2).
- Does it fall as your needs simplify? A good arrangement lets you step down to a lighter service level without moving every account.
Are financial advisor fees negotiable?
Often, yes, and you do not have to guess. Form ADV Part 2A, Item 5.A requires a registered adviser’s brochure to describe how it is paid, provide its fee schedule, and “disclose whether the fees are negotiable” (SEC Form ADV Part 2 instructions). You can read any firm’s brochure for free on the SEC’s Investment Adviser Public Disclosure site (adviserinfo.sec.gov). The most useful things to negotiate are usually not the rate itself but the base it applies to (excluding held-away 401(k)s or 529s), breakpoints at higher balances, and a cap or conversion to a flat fee once assets pass a set level.
Advisory fees are not tax-deductible on your federal return
Investment advisory fees used to be a miscellaneous itemized deduction. The Tax Cuts and Jobs Act suspended those deductions starting in 2018, and the 2025 One Big Beautiful Bill Act removed the end date. The Internal Revenue Code now says no miscellaneous itemized deduction is allowed “for any taxable year beginning after December 31, 2017” (26 U.S.C. §67(h)). For 2026 and later, a $30,000 fee paid from a taxable account is $30,000 of after-tax money. At this family’s combined marginal rates on wages (federal for 2026, California on its latest published 2025 schedule, plus payroll taxes), paying it takes well over $50,000 of salary. That is one more reason to know exactly what the fee buys.
Common mistakes high-income families make with adviser fees
- Judging by percentage alone. 0.8% sounds lower than a $20,000 flat fee until you multiply it by $3 million ($24,000).
- Ignoring the layer underneath. Fund expense ratios, custodian fees and trading costs can be charged on top of the advisory fee. Item 5.C of the brochure has to describe them.
- Paying for investment picking while the tax work goes undone. For a family with RSUs, a year of poorly timed sales or a missed mega backdoor Roth can cost more than the fee difference between two advisers.
- Never revisiting. The fee that fit at $1 million of assets may be far out of line at $4 million. Put a review date on the calendar.
What to write down for your children
Your kids will one day hire, or fire, their own advisers. Write a one-page note on why you chose the pricing model you did, what you pay in dollars each year, and what you expect in return. It turns a line on a statement into a lesson in judgment. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”
Frequently asked questions
Is 1% a reasonable fee for a financial advisor?
It depends on the balance and the work. On a smaller account with full planning, a percentage fee can be fair. On $3 million, 1% is $30,000 a year and grows with the portfolio. Ask for the dollar amount, what is included, and whether breakpoints or a flat-fee option exist. Compare it against the specific tax and planning work your family needs.
Is a flat-fee adviser always cheaper?
No. A flat fee can be higher than a percentage fee on a small portfolio, and some flat-fee arrangements cover only planning, not ongoing investment management. The advantage is that the price follows the scope of work rather than market moves, which usually helps larger, growing households. Read what the fee covers before comparing prices.
Where can I see what an adviser charges before meeting them?
Search the firm on the SEC’s Investment Adviser Public Disclosure site and open its Form ADV Part 2A brochure. Item 5 lists the fee schedule, billing method, other costs you pay, whether fees are negotiable, and any commissions the adviser earns. Form CRS, a short relationship summary, also describes fees and conflicts in plain language.
Next step
Pull the Form ADV brochure for your current adviser, or any you are considering, and write your fee in dollars for this year and in five years. For more detail, see how much a wealth manager costs, average management fees, how to vet an adviser and how many advisers are fiduciaries. Age Five Family Office™ works on a fee-only basis across investments and tax planning; if you want a second opinion on what you pay, a Tax & Wealth Assessment is a good place to start.
This is general education, not individual advice. The right fee arrangement depends on your family’s full picture.
Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.
Connect on LinkedIn → · About KevinThis is part of how we approach Investment & Risk Management for high-income W-2 families at Bright Advisers.
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