Why Flat Fees Are Better Than 1% of Assets Managed, for Tech Professionals
- Marcel Miu, CFA, CFP®
- 3 days ago
- 7 min read
TL;DR
For tech professionals with rapidly growing wealth, the traditional 1% Assets Under Management (AUM) fee can create a compounding drag on returns over time. A flat-fee model seeks to better align incentives, remove potential conflicts of interest, and cap your costs. This structure aims to save you money over the long term, though actual savings will depend on portfolio size and market performance.
The Equity Rich, Cash Poor Dilemma
Meet Alex.
She's a senior engineer at a Series C startup. On paper, she's doing incredible. She has a net worth of $4 million thanks to a stack of Incentive Stock Options.
But her bank account tells a different story. Her liquid cash is modest because everything is tied up in company equity.
Alex knows she needs help. She approaches a traditional financial advisor at a big-name firm. They look at her balance sheet and hesitate. They tell her to come back when she has $1 million in investable assets.
The industry failed her by ignoring her complexity because it did not fit their fee model.
This matters because tech wealth is lumpy. You often need sophisticated tax and equity advice before the liquidity event occurs. The traditional Assets Under Management model typically rewards advisors only after you sell everything and give them the cash.
You deserve advice that seeks to solve your actual problems, not advice that just serves the advisor's business model.
What Are You Actually Paying For? Breaking Down the 1% Model
The 1% fee originated in a world of paper stock certificates. It was a toll you paid to access the market. Today, access to the market is largely commoditized.
Yet the same fee structure remains.
Managing a portfolio of $5 million today is not 5x harder than managing a portfolio of $1 million. The technology is often the same. The rebalancing software is the same. The investment vehicles are the same.
When you pay a percentage of your assets, your fees grow with your wealth and with markets, regardless of the service level.
Consider the math. A 1% fee sounds small. But when compounded over 20 or 30 years, it can consume a significant portion of your total investment returns. That is money that could be compounding for your retirement (keep in mind, investing involves risk and returns are never guaranteed).
Then there is the potential conflict of interest.
The Assets Under Management model can create a subtle friction between what might be best for you and what is profitable for the advisor.
Take real estate. If you want to use cash to buy a home, you withdraw funds from your portfolio. Your advisor's revenue drops. A flat-fee advisor is revenue-neutral regarding this decision. They can run the numbers objectively.
Take debt payoff. If you want to pay off a mortgage to reduce your monthly burn rate, assets leave the portfolio. An AUM advisor loses a recurring revenue stream.
Many AUM advisors will claim to overcome these inherent conflicts, and while I believe most advisors do this work to help people, the old saying "show me the incentive and I'll show you the outcome" has stood the test of time for a reason.
Why Tech Wealth Requires a Different Fee Structure
Your financial life is defined by equity compensation events.
Vesting. Exercise. Tender offers. IPOs.
These are the moments that often determine your net worth. For you, broad investing is arguably less impactful compared to these decisions.
Flat fees cover the high-complexity planning you actually need without penalizing your investment growth.
A tech professional with $500k in liquid assets but complex ISO and AMT issues can require significantly more work than a retiree with $5M in stocks and bonds.
The AUM model can overcharge the retiree and under-service the tech pro.
Under a flat-fee model, you pay for the service you use.
For a tech pro, you may need help deciding when to exercise options. Or a tender offer evaluation, meaning you need someone to analyze whether to sell into a tender offer (see our tender offer blog post here).
Many 1% AUM advisors are often waiting for these events to be over so they can manage the cash. A flat-fee advisor is in the trenches with you, helping optimize the outcome.
This visual reinforces the concept that as your wealth grows, your fee should not necessarily punish you for that growth. The chart is for illustrative purposes only.
The Compounding Cost of AUM Fees
Small fee differences can compound into meaningful wealth gaps over time.
Let's look at the data.
Assume you start with a $1 million portfolio. You contribute $100,000 annually. The market grows at a hypothetical 7%.
In scenario A, you pay 1% AUM. In scenario B, you pay a fixed flat fee indexed to inflation.
Over 20 years, the AUM fee grows to over $30,000 per year. The flat fee remains relatively stable.
That difference is capital that remains in your account. It has the potential to compound year after year.
Over a 30-year horizon, the difference could be enough to fund a child's college education or buy a vacation home.
You work hard for your money. You take risks at startups. You should generally aim to keep most of the upside.
Here's the Calculator shown above
Enter your current investable assets and annual savings rate. See how much a flat fee could potentially save you over 10, 20, and 30 years compared to a 1% AUM fee. Calculations are hypothetical.
Does Flat Fee Mean No Investment Management?
No, this is a common misconception.
Many flat-fee advisors (including SWP) offer comprehensive investment management. This includes rebalancing, tax-loss harvesting, and asset location.
The difference is in the billing. You are not charged based on the assets. You are charged for the service of managing them.
A flat-fee advisor often looks at your entire net worth as one picture. They give advice on your 401k even if they do not custody it. They may give you advice on other held-away assets even if they do not trade them.
We provide full discretionary management. We trade the accounts. We rebalance the portfolio. We just don't take a percentage of the pie.
Key Takeaways
Incentive Alignment is the primary benefit. Flat fees seek to remove many conflicts of interest and provide more objective advice.
Cost Capping is essential for high earners. Your fees shouldn't automatically double just because the market went up or your company IPO'd.
Service Focus is the modern approach. You pay for the advice you need regarding taxes, equity, and estate planning, not just the assets you have sitting in an account.
Wealth Preservation is the goal. Saving 0.5% or more in fees annually can add years of funding to your retirement or financial independence date, depending on market performance.
FAQs
Q. What if my net worth decreases? A. Flat fees provide more predictability. You know exactly what you are paying regardless of market volatility. In a down market, you do not want to be wondering if your advisor is distracted by their own falling revenue.
Q. How do I pay a flat fee?
A. It is typically paid quarterly. You can pay it directly from cash flow or have it deducted from your investment accounts, similar to how AUM fees are collected.
Q. Do you still manage my investments? A. Yes. We provide full discretionary management, trading, and rebalancing. The service level on investments is high. The fee structure is just different.
Your Next Steps
Here is how to evaluate if you are overpaying for financial advice.
Audit Your Current Fees: Pull out your last year-end statement. Look at the fee section. Multiply your current balance by your advisor's fee percentage. Now, calculate what you will pay in 5 years if your portfolio doubles. Ask yourself if the service you receive justifies that potential increase.
Identify Your Real Needs: Are you paying for investment allocation? That is largely commoditized. Or are you paying for equity comp strategy? That is specialized. If you have ISOs, ensure your advisor specifically models things like AMT.
Run the Numbers: Use the calculator provided above to visualize the potential difference in your specific situation.
Stop Overpaying for Asset Gathering
The AUM model is a legacy fee structure. It can drain your returns and introduce conflicts of interest.
In our view, the Flat Fee model is an upgraded approach.
Book a Discovery Call to see exactly how our flat-fee model applies to your specific situation and calculate your potential lifetime savings.
This blog is for educational purposes only and should not be taken as individual advice
Simplify Wealth Planning
Fast-Tracking Work Optional For Tech Pros | Turn Your Stock Comp Into Wealth, Cut Taxes & Live Life Your Way | Flat Fees Starting at $3k - Not Based On How Much Money You Have
Marcel Miu, CFA and CFP® is the Founder and Lead Wealth Planner at Simplify Wealth Planning. Simplify Wealth Planning is dedicated to helping tech professionals master their money and achieve their financial goals.
Disclosures
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