Before getting into exceptions, let me share an example of a simple, uncomplicated fee schedule.
I've probably read more Registered Investment Advisor ("RIA") fee schedules than any other person. We use AI to read tens of thousands of fee schedules each year. I've written the rules that the AI uses to translate plain language explanations of fees into standardized math.
My biggest lesson from reading all of these fee schedules is that there's always an exception. No matter how many rules and examples I come up with, I keep finding new fee schedules that don't fit into the categories I've built.
Every RIA files a fee schedule with the SEC. Almost none of them look alike.
| Annual Fee Calculation | Rate |
|---|---|
| On the first $500,000 | 1.20% |
| On assets of $500,001 – 2,000,000 | 1.00% |
| On assets over $2,000,000 | 0.70% |
That's as clean and simple as they get. Most are more complicated. Here's a list of exceptions and complications I've come across, beginning with the most common:
01
Exception #1: A vague range
This is so common that I can't call it an exception. Many RIAs will give a broad range like, "advisory fees range from 0.50% to 2.00%" or even worse, "fees are negotiable and generally do not exceed 2.00%."
The SEC instructs RIAs to "Provide your fee schedule." (Form ADV Part 2 instructions) I wouldn't call these vague ranges a fee schedule, but I guess the SEC is OK with it or else it wouldn't be so common.
02
Exception #2: Negotiable
In practice, RIA fees are almost always negotiable. Sometimes, it's made an explicit part of the schedule instead of listing a fee rate. For example, "fees on assets above $1,000,000,000 are negotiable."
03
Exception #3: Minimum fee level
An RIA might charge 1.20% on the first $500,000 of assets, but also include "subject to a minimum fee of $20,000."
In that case, a $500,000 portfolio wouldn't pay 1.20% / $6,000 per year, but actually 4.00% / $20,000.
The purpose of minimums is to make sure every relationship is profitable. A client with $500k probably takes the same amount of resources to properly service as a client with $2 million, so a floor makes sense.
04
Exception #4: Fee schedules for different strategies
Some RIAs include additional fee schedules such as fixed income only portfolios. Our first choice is the schedule for a "balanced" portfolio. If that's not available, then we'll select equity. Those are more typical advisory portfolios.
05
Exception #5: Separate fee schedules for smaller portfolios
Here's an example, "1.00% on the first $3,000,000," but "for relationships of less than $3,000,000, the rate is 1.25% of the aggregate market value of account assets under management." The goal is similar to having a minimum fee, but it's an alternative approach. This usually creates an odd outcome where the fees for a $3,000,000 portfolio are lower than $2,900,000.
06
Exception #6: Additional fixed fees
In these instances, there may be a normal fixed fee schedule for investment advisory work, but an additional fee for standard financial planning advice, like "$3,000 per quarter for financial planning advisory." There can be similar arrangements for trustee advisory work.
07
Exception #7: Range based schedule
This flips the typical schedule. An example could be "Portfolios from $0 to $5,000,000 are charged $40,000 annually; portfolios from $5,000,001 to $10,000,000 are charged $60,000 annually…"
I'll add more exceptions to this list as we come across them.
FAQ
Frequently asked questions
What does it mean when an advisor says fees are negotiable?+
In practice, RIA fees are almost always negotiable. Sometimes, it's made an explicit part of the schedule instead of listing a fee rate. For example, "fees on assets above $1,000,000,000 are negotiable."
What is a minimum annual fee?+
An RIA might charge 1.20% on the first $500,000 of assets, but also include "subject to a minimum fee of $20,000." In that case, a $500,000 portfolio wouldn't pay 1.20% / $6,000 per year, but actually 4.00% / $20,000. The purpose of minimums is to make sure every relationship is profitable. A client with $500k probably takes the same amount of resources to properly service as a client with $2 million, so a floor makes sense.
Why do some advisors only disclose a fee range?+
This is so common that I can't call it an exception. Many RIAs will give a broad range like, "advisory fees range from 0.50% to 2.00%" or even worse, "fees are negotiable and generally do not exceed 2.00%." The SEC instructs RIAs to "Provide your fee schedule." I wouldn't call these vague ranges a fee schedule, but I guess the SEC is OK with it or else it wouldn't be so common.
Do advisors charge different fees for different strategies?+
Some RIAs include additional fee schedules such as fixed income only portfolios. Our first choice is the schedule for a "balanced" portfolio. If that's not available, then we'll select equity. Those are more typical advisory portfolios.
Can a smaller portfolio pay a higher rate than a larger one?+
Yes. Here's an example, "1.00% on the first $3,000,000," but "for relationships of less than $3,000,000, the rate is 1.25% of the aggregate market value of account assets under management." The goal is similar to having a minimum fee, but it's an alternative approach. This usually creates an odd outcome where the fees for a $3,000,000 portfolio are lower than $2,900,000.
Are financial planning fees charged separately?+
Sometimes. In these instances, there may be a normal fixed fee schedule for investment advisory work, but an additional fee for standard financial planning advice, like "$3,000 per quarter for financial planning advisory." There can be similar arrangements for trustee advisory work.
We've read thousands of fee schedules to determine the lowest-fee RIAs by state.
Fee schedule examples are drawn from publicly available SEC Form ADV Part 2A regulatory filings. This article is for informational purposes only and does not constitute investment advice. Advisor Facts is an independent research resource. Advisor Facts does not receive compensation from any firm listed or referenced in this article.