If you hire an investment advisor, you may pay fees based on assets under management. Suppose, for example, you have a $300,000 portfolio and the advisor charges an annual fee of 1 percent. You’d pay $3,000 a year–$750 every three months, assuming no change in the size of your portfolio.
Advantages: This fee includes all transaction costs so advisors won’t be tempted to trade your portfolio heavily and pocket sales commissions. With this method, your advisor’s compensation will be higher if your portfolio gains value so your advisor will be motivated to manage your money well.
Drawbacks: You pay a substantial amount each year with this method. If you set up an investment plan and hold onto the same assets, in this example you’ll pay $3,000 each year–you’ll pay even more, if your portfolio grows–even if you’re not receiving ongoing advice.