How Honest Financial Advisors Should Disclose Their Fees
Sunday, October 19, 2025
A few years ago, a reader shared an experience that still resonates. They’d worked with a traditional financial advisor for years, convinced they were getting expert guidance. Only after moving to a new firm did they realize how much they’d paid: over $12,000 in fees on a $200,000 portfolio in a single year. None of those costs were clearly disclosed in writing.
The reality is that many investors still don’t see the full picture. Fees can be scattered across advisory contracts, fund expense ratios, and trading commissions. Unless an advisor explains them clearly, even savvy clients may not know what they’re really paying.
Advisor fees don’t just cover service: they directly reduce your investment returns. A 1% annual fee may sound small, but on a $250,000 portfolio growing 7% per year, that extra 1% costs roughly $245,000 over 30 years.
Fee transparency isn’t just good ethics – it’s part of fiduciary duty. Under SEC Regulation Best Interest (Reg BI) and fiduciary standards enforced by the CFP Board, advisors must act in clients’ best interests. That includes explaining compensation clearly and avoiding hidden conflicts.
Here’s the most common advisor fee models:
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Assets Under Management (AUM) |
0.25% – 1.25% AUM per year |
Takes a percentage of your portfolio value annually |
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Simple fixed monthly or annual charges |
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Advisors earn by selling you products that pay them |
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0.75% to 1.50% Plus Other Fees |
Combines multiple structures, usually a subscription plus commission products |
Many reputable fiduciary advisors now favor flat or subscription models, which separate advice from asset size and reduce conflicts of interest.
This reader had his account and financial advisor at one of the biggest two name financial firms in the country. For this privilege, the reader was paying a fee of $40 per year for the first account, $20 per year for the second account, and $48 per year for his retirement account.
On the surface, paying a financial advisor just $108 per year is a good deal. My reader was annoyed by these fees, especially since his financial advisor would “blame them on the DOL Fiduciary Rule and Big Government”, but when realizing they were pretty low, he felt better. But the fees don’t really stop there.
Where he was really getting shafted in fees was in his portfolio. This advisor put him in the following funds:
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Hartford Balanced Fund – Class A |
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Hartford Dividend & Growth Fund – Class A |
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Hartford MidCap Fund – Class A |
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Hartford Equity Income Fund – Class A |
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Hartford MidCap Value Fund – Class F |
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Hartford International Opportunity Fund – Class I |
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American Funds Growth Fund America – Class A |
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American Funds AMCAP Fund – Class F3 |
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American Funds Growth Fund – Class 529A |
What’s important to note here is that these are really expensive funds to own. Not only are there front-end sales loads on many of these funds, they have very high expense ratios, and many charge 12B-1 fees as well.
Furthermore, it’s weird the asset choices. We didn’t go into too many details on account types, but he did share that his advisor was managing a regular account, a retirement account, and a 529 college savings plan. So, my guess is that in the retirement account, he want with some of the no-load funds because he couldn’t justify the large sales load as a fiduciary.
So here’s the scary part. Look at how much he was paying in fees (in dollars) to this “financial advisor”:
Ouch…. do you see how much this guy pays on his $199,000 portfolio – WAY TOO MUCH!
And this financial advisor – he’s making $7,427.50 in commissions on top of his $108 per year advisory fee. When you add in the expense ratio, this portfolio is costing the investor $11,004.71 in year 1. And potentially costing the investor $1,879.21 or more per year after!
I should also mention that it’s highly likely this individual is “rebalancing” his clients portfolios at least once a year – which means more commissions in his pocket. All at his client’s expense.
What I don’t think he realized was that his $40,000 investment started at $37,700 because of this sales charge – so he was already investing at a disadvantage. Then, you add the huge annual fees on top of it!
I personally think this is very wrong. And what compounds the problem is that this advisor wasn’t transparent with his client. If an advisor is transparent and someone wants to pay – that’s one thing. But when the client is left in the dark on the true costs of their investments – in my opinion that should be criminal.
Looking at this guys portfolio, I don’t even know if it really makes a lot of sense.
But, for argument’s sake, let’s say it does. Could we build a much lower cost portfolio? 100% yes.
Here’s what a similar low cost portfolio looks like. Notice I combined a couple of funds into the same fund for large cap growth. The investments he was in didn’t make sense – but it could be do to retirement account choices.
Also, we chose a Vanguard 529 portfolio to mimic the existing 529 plan. Plan choices may vary, and it could make sense to open a state-specific plan.
By simply investing in a low cost portfolio, we were able to reduce total costs from $11,004.71 to just $176.60. That’s a 99% reduction in costs.
Let’s say that you even want to pay a fee-only financial advisor to help you set this up. Well, that would likely be a one-time cost of around $1,000. Even if you add that in, you’re only paying $1,176.60 in year one, which is 90% less than you would with this financial advisor.
Not only that, but the annual fees are significantly lower. The original portfolio was costing the investor $1,879.21 per year! This new portfolio with low cost mutual funds is only costing the investor $176.60 per year! A 91% reduction in annual expenses!
A transparent financial advisor should show you:
You have a legal right to this information — it’s in your advisor’s Form ADV, filed with the SEC. Ask to see Part 2A (the brochure) and Part 2B (advisor bios) before signing anything.
Before you jump in with anyone, make sure they can clearly answer these questions:
A transparent advisor will answer all of these directly and in writing.
An honest financial advisor could summarize all their fees on a single page like this:
I’ve uploaded a Word Document of this form if anyone wants to use and/or modify it. You can download a copy here: Investment Fee Disclosure Form
I think this type of form would bring a high amount of transparency to the costs associated with investing, financial advice, true fiduciary interest, and more.
Honest advisors earn trust through clarity. They disclose every source of compensation, publish their ADV, and explain costs in plain English. If an advisor hesitates to share their full fee structure, take that as a sign to keep looking.
Over a lifetime of investing, transparency isn’t just ethical — it’s profitable. Paying 0.25% instead of 1% could mean retiring years earlier with a larger portfolio and far fewer unpleasant surprises.
How much should I expect to pay a financial advisor?
Most fiduciary advisors charge between 0.25% and 1.00% of assets annually or a flat fee that ranges from $1,200 to $5,000 per year.
Are all advisors required to be fiduciaries?
No. Some brokers and insurance agents can operate under a “suitability” standard, which requires far less transparency. Fiduciaries must always act in your best interest.
What’s the simplest way to compare advisor fees?
Request each advisor’s Form ADV Part 2A, then total the advisory fee, fund expenses, and trading costs.
Should I choose a flat-fee or percentage-based advisor?
Flat-fee or subscription advisors often make more sense for large portfolios or when you primarily need planning, not active management.
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