What Are Asset Under Management Fees?

You’ve learned about all kinds of fees and expenses you may pay as an investor, but there’s still one more.

And this is a popular one. These are Assets Under Management fees (also called “AUM”).

Again, this last type of fee is also pretty common. Financial planners and investment advisors may help you determine your risk tolerance, come up with an appropriate asset allocation based on your age and other factors, help you choose the investments for your portfolio initially, and monitor those investments over time – buying and selling as needed. There will be a fee for this service. That’s where the investment advisory fee comes in. It is often a percentage fee of the assets they manage for you. This is the asset under management fee. If they charge 1% and they manage $100,000 for you, you will pay them $1,000 a year. If you have $1 million they manage for you, they will charge $10,000 per year.

So, as you can see, there can be more than one layer of fees.

You may pay an investment advisor 1% a year to manage your money, and that investment advisor may suggest you purchase a mutual fund that has an expense ratio of 0.50%. In that case, you’d be paying 1% to your advisor and half a percent to the mutual fund manager for a total of 1.50%.

When you are looking at fees, make sure you look at all the fees you are paying. Total them all up to see what you’re really paying.

As a rule of thumb, it’s best if your investment advisory fee is 1% or less and the total of your other fees is less than 1%, too.

You should have no problem having your total expenses per year be 2% or less. If either fee or both combined are more than 2%, you should dig deeper. Find out why.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.