What Is Your Financial Advisor Costing You?

The tree symbolizes your wealth. The left side illustrates how traditional high-fee advisors can harm it, while the right side shows the growth achieved with a modern, cost-effective advisor.

I recall attending training sessions and meetings early in my career with senior advisors who attempted to explain their fee structure and the overall costs associated with hiring them, but I found their explanations frustratingly poor and the fee structures confusing. This lack of clarity is a significant reason why many people avoid working with financial advisors, which unfortunately can lead to disastrous financial consequences that far outweigh the fees associated with professional guidance. In this article, I aim to demystify the costs associated with hiring a financial advisor, providing transparency and sharing tips to help you make informed decisions when selecting a professional for your portfolio management and financial planning needs.

First, I’ll breakdown the difference between “Fee-Based” and “Fee-Only” advisors, and then move on to sharing examples of how these different types of advisors, fee-structures, and investment expense ratios impact your wealth.

Let’s break down some key terms:

Fee-Based Advisor: A fee-based advisor has the flexibility to bill you using a percentage of assets under management, such as 1% per year, and typically doesn’t charge commissions for individual trades — although they still could. This flexibility allows them to charge a percentage-based fee or earn commissions by selling commissionable products like annuities and life insurance. These types of advisors are commonly found at large national investment firms.

In my view, the conflict of interest inherent in a fee-based relationship — where advisors can sell commissionable products that typically pay them more than other fee structures — creates an environment that unfortunately elevates the risk of unethical sales practices. This is often seen in “wealth management” firms that push annuities and life insurance on every client. If you’ve ever sat in on one of those meetings, you’ve probably felt like you were speaking to a shady used car salesman, and not with someone who has your best interest at heart. There are certain cases where an annuity or universal life insurance product is in the best interest of a client, however, those cases are often unique in my opinion.

Fee-Only Advisor: A fee-only advisor charges only the agreed-upon fee — whether it’s a percentage of AUM, a flat fee, or an hourly rate — and does not earn commissions from individual trades or specific products. These types of advisors are commonly found in the “RIA” space, or Registered Investment Advisors, also known as independent advisors.

Let’s look at a few examples:

If a client entrusts $1 million to an advisor who charges 1% per year ($10,000), that’s an AUM percentage-based fee structure. This type of fee-structure is common with both fee-based and fee-only advisors, however, the key difference is that fee-based advisors can add “commission” based products on top of this fee, where fee-only advisors cannot. As the client’s portfolio grows or shrinks, the advisor’s compensation correspondingly increases or decreases, aligning the advisor’s interests with the client’s — a concept often referred to as being “on the same side of the table.”

Now, compare that to an advisor who encourages the same client to invest $1 million into an annuity, which can pay the advisor 5–10% upfront ($50,000–$100,000). Regardless of whether the portfolio increases, decreases, or stays flat, the advisor has already pocketed the commission and is unaffected by the investment’s performance. It’s clear which structure benefits the client more and which benefits the advisor.

Focusing on the AUM percentage-based fee structure, these percentages can vary widely. Having worked for banks, investment firms, and now running my own practice, I’ve seen advisors quote clients anywhere between 0.30% and 2% as the “advisory fee” (this does not include expense ratios, which we’ll cover a bit later in the article.)

Returning to the earlier example, suppose a client begins their relationship with an advisor who charges 1% per year on $1 million, and their portfolio averages a gross annual return of 8% (assuming no sales and it’s a taxable account with no dividends or taxes). The difference between an advisor who charges 1% per year and one who charges 0.75% can amount to nearly $187,000 over 20 years!

There are plenty of firms that offer a modernized, cost-effective approach to managing wealth. Ask yourself, “Is the value brought by your current advisor worth spending an extra $187,000?” Often, the answer is no.

Now, let’s move on to expense ratios. Expense ratios are the fees associated with specific investments; they cover the expenses to run mutual funds, ETFs, and other investment vehicles.

For example, the Vanguard S&P 500 ETF (VOO) has an expense ratio of 0.03%. This means that if you invest $1 million into VOO, you’ll pay $300 a year to Vanguard to cover their fees. This fee is billed directly out of the position, so you’ll never see the bill.

Now, consider another fund, the Templeton Growth Fund (TEPLX). According to their website, TEPLX has averaged an annual return of 3.77% (without upfront sales charge or “commission”) versus its benchmark return of 8.77% over the past 10 years. The net expense ratio for TEPLX is 1.04%. Therefore, if you invest that same $1 million into TEPLX, you’ll pay Franklin Templeton $10,400 per year to manage that one fund — which has consistently underperformed its benchmark by a wide margin.


A major issue I often encounter when reviewing portfolios for prospective clients is that their financial advisor is charging a fee of about 1% to 1.25%, and they’re invested in mutual funds like TEPLX with high expense ratios. Combining a 1.25% advisory fee (which goes to the financial advisor) and an average expense ratio of 0.70% for their investments, the investor’s combined annual fees amount to 1.95% per year. Assuming the portfolio is worth $1 million, that’s equivalent to paying $19,500 per year!

If that same investor worked with a financial advisor who charged a more reasonable fee — say, 0.85% per year — and utilized passive index funds (which often outperform active funds) with an average expense ratio of 0.10%, the combined annual fees would be 0.95%, or $9,500 per year.

Over 20 years, the impact of paying an extra 1% in fees per year is significant. At a net return of 7.05% (8% gross return minus 0.95% total fees), the portfolio would grow to approximately $3,870,680. At a net return of 6.05% (8% gross return minus 1.95% total fees), the portfolio would grow to approximately $3,252,443. You would end up with $618,000 less by staying with the same high-cost strategy.

For many, $10,000 per year in savings is significant. Some might look at that number and think it’s not a big deal, but due to compound interest, over the course of 20 years, that amounts to an additional $618,000!

If you’re not sure how much you’re paying in total fees and expenses with your current financial advisor, consider reviewing your latest portfolio statement carefully. Understanding these costs is crucial to protecting your wealth from unnecessary or excessive fees.

About The Author, Zak Gardezy, CFP®

Zak Gardezy, CFP®, is the founder and a private wealth advisor at Wealthstone, where he leverages nearly a decade of diverse financial services experience to serve high-net-worth individuals, families, and business owners. Prior to founding Wealthstone, he was a Partner on a Forbes Best-In-State Wealth Management Team managing over $3 billion in assets, earning accolades such as Morgan Stanley’s Pacesetter’s Club designation twice and the Golden Spoke Award at Wells Fargo Bank. Zak specializes in providing custom-tailored investment management and in-depth financial planning, utilizing advanced technology and resources from leading industry providers and Charles Schwab. A CERTIFIED FINANCIAL PLANNER® professional educated at the Boston Institute of Finance, he creates personalized financial strategies that include alternative investments like private equity. Zak earned his B.A. in Political Science from Arizona State University and is currently an MBA candidate at USC Marshall’s School of Business, equipping him to analyze global economic trends affecting client portfolios and long-term plans. He has also spoken publicly on equity compensation and retirement planning, advising stock-plan and retirement plan participants from numerous Fortune 100 companies, and local small businesses.

About Wealthstone:

Wealthstone Private Wealth Management is a fee-only Registered Investment Advisor (RIA) based in Arizona. We are committed to:

  • Competitive Fees: Our advisory fee schedule is often significantly lower than those of large national firms, providing exceptional value without unnecessary costs.

  • Strategic Investment Approach: We utilize passive index ETFs and select individual stocks to minimize expense ratios and prevent fee erosion of your returns.

  • Personalized Service: Our boutique firm offers tailored financial planning and portfolio management services to meet the unique needs of business owners, pre-retirees, retirees, corporate executives, medical professionals, and ambitious young professionals.

Take the Next Step

Understanding and optimizing your fee structure is crucial for maximizing your wealth. If you’d like a comprehensive portfolio analysis or wish to learn more about how we can help you achieve your financial objectives, please reach out. Wealthstone is dedicated to ensuring you receive transparent, honest, expert advice and personalized attention.

Contact Information:

Zak Gardezy, CFP®
Founder & Private Wealth Advisor, Wealthstone Private Wealth Management

Email: zak@wealthstonepwm.com

Phone: (480) 973–3560

Address: 7014 E. Camelback Rd. Suite B100A, Scottsdale, AZ 85251. (By appointment only.)

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