One of the more frustrating realities in financial services: the number you see on the advisor’s proposal is often a fraction of what you’re actually paying. The gap between “what it looks like it costs” and “what it really costs” can exceed 1 percent per year — a figure that compounds into serious money over a long investing life.
Here’s a simplified guide to the layers, and how to calculate your true all-in cost.
Layer 1: The advisory fee
This is the headline number — the percentage (or dollar amount) the advisor charges to manage your assets. It typically ranges from 0.25% to 1.5% per year. It’s the most visible piece and often the only piece clients think about.
Layer 2: The underlying investment costs
Your portfolio is made up of funds (mutual funds, ETFs, separately managed accounts). Each of those has its own expense ratio — a fee deducted from the fund’s returns before they’re reported to you.
Examples:
- A passive index ETF might charge 0.03% to 0.10%.
- An actively managed mutual fund can charge 0.50% to 1.25%.
- A “multi-strategy” or alternative fund can charge 1.5% to 3%+, sometimes with additional performance fees.
This layer is often invisible in the advisor’s pitch. You have to look at the individual fund fact sheets to find it.
Layer 3: Platform / wrap / custodial fees
Some arrangements include a “platform fee” or “wrap fee” — a separate charge for the infrastructure the advisor uses. This might add another 0.10% to 0.50%. Legitimate? Sometimes. Duplicative with the advisory fee? Often.
Layer 4: Transaction costs
Trading costs have mostly vanished for ETFs and stocks at major custodians. Mutual funds can still carry transaction fees ($20-50 per trade) depending on the share class. Bond trades have bid-ask spreads that don’t appear on your statement but very much exist.
Layer 5: Commissions and loads (if applicable)
If your advisor is dual-registered and sells commissioned products — load mutual funds, annuities, insurance — those commissions can be 5% or more of the amount invested. They’re paid once, but they come out of your principal.
The sum
Let’s do some rough math. Assume a $1,000,000 portfolio at a fee-based firm with a 1.0% advisory fee, using a mix of actively managed funds averaging 0.75% expense ratios, plus a 0.15% platform fee:
- Advisory fee: 1.00%
- Underlying expense ratios: 0.75%
- Platform fee: 0.15%
- All-in cost: 1.90% per year — or $19,000 annually
Same client, at a fee-only RIA using low-cost index ETFs:
- Advisory fee: 0.85%
- Underlying expense ratios: 0.08%
- Platform fee: none
- All-in cost: 0.93% per year — or $9,300 annually
The difference: $9,700 per year, or roughly 0.97% annually. Over 20 years, compounded at a 7% real return, that’s close to $500,000 in foregone wealth.
How to find your actual number
- Add up the advisory fee — ask in writing, and ask if it’s “all-in” or just the advisor’s cut.
- List every holding in your portfolio and look up the expense ratio for each. Weighted by percentage of portfolio, calculate the blended fund expense ratio.
- Ask whether there are platform, wrap, or custodial fees. Get it in writing.
- Identify any commissioned products — annuities, load funds, private investments — and understand the up-front and trailing compensation.
- Sum the layers. That’s your real annual drag.
If your advisor can’t or won’t help you do this math, that’s itself information.
The fiduciary-transparency connection
This is one of the practical reasons the fiduciary standard matters. A fiduciary has disclosure obligations; a suitability-standard broker does not, to the same degree. The opacity that makes all-in cost hard to calculate is often a feature of the commissioned model — and a bug for you.
Our approach
At Wilco Financial, the advisory fee is 0.85% per year of assets under management. There are no layered fees, no commissions, no product kickbacks, no platform wraps. Many portfolio holdings are individual stocks and bonds, which have zero expense ratio. Any ETFs we use are low-cost — typically 0.05% to 0.15% blended on the ETF portion.
All-in, most of our clients pay under 1% per year to have their entire portfolio managed by a fiduciary. We think that’s a reasonable number for institutional-quality management. We’re happy to run the math on your current setup if you’re curious how it compares — just reach out.