Investors can find the dollar cost of a mutual fund. They can find the dollar cost of their 401(k) plan. What they cannot easily find is the cumulative dollar cost of the investment advice they may be paying the most for.
That gap is where I want to start. The fee model behind it is the larger question, and it deserves more scrutiny than it gets.
The timing matters. In November 2025, the SEC’s Division of Examinations named investment adviser fiduciary obligations and financial conflicts of interest among its fiscal 2026 examination priorities. In June 2026 the Division followed with a Risk Alert on advisers’ economic conflicts of interest, covering the incentives created by compensation arrangements, fee and expense disclosure, and whether fees are actually calculated and charged the way clients were told they would be.
If you pay a wealth manager a percentage of your assets every year, has anyone ever shown you in dollars what that relationship may cost you, not just in fees paid but in the compounded earnings those fees never got the chance to make?
The Disclosure Gap
American investors already get two kinds of fee disclosure that turn percentages into dollars. A mutual fund prospectus has to show what the fund’s expenses take out of a hypothetical $10,000 investment over one, three, five, and ten years. A retirement plan governed by the Department of Labor’s participant disclosure rule has to show investment expenses both as a percentage and as a dollar amount for each $1,000 invested, along with a warning that fees can substantially reduce account growth over time.
Both rules rest on the same idea: a percentage by itself does not tell an investor what something actually costs. There is a third setting where that logic does not apply.
When a registered investment advisor manages a portfolio for a fee, usually a percentage of assets under management, no comparable rule requires the advisor to project what that fee may cost the client in cumulative dollars over the client’s investment horizon. The mutual fund’s dollar cost is illustrated. The retirement plan’s dollar cost is illustrated. The advice itself is not.
There is also a second number that almost never gets calculated: the earnings those fee dollars would have produced had they stayed invested. That figure can only be estimated before the fact, using an assumed return, but it can be calculated precisely in arrears once the actual return is known. Together, the fee itself and the earnings it forfeits are the true cost of advice, charged year after year. The question every investor should ask is whether the value received justifies that cost, especially when index returns are available for a fraction of the price through exchange-traded funds that simply track the index.
Why a Percentage at All?
Start with the fee’s basis itself, something industry convention made easy to accept without much question. The investment adviser business, now usually called wealth management when it serves individuals, is relatively young. It grew up as institutions came into compliance with the Employee Retirement Income Security Act of 1974. Before that, individuals invested through mutual funds or brokerage accounts, and bank trust departments handled much of the rest, often charging a mix of a percentage of assets and a share of income produced.
Before exchange-traded funds became widely available, portfolios were built from individual securities, which arguably took more resources to select than the diversified ETFs most wealth managers use today. Maybe that resource question justified pricing advice as a percentage of assets at the time. Whatever the original justification, the percentage became the default, and it has stayed the default long after the reasons for it changed. The SEC requires advisers to disclose that fees are negotiable, which tells you something about how fixed that convention actually is.
How do advisers justify their fees aside from the comfort that they may give their clients? Do advisers add value to a portfolio after their fees relative to index benchmark returns that clients could obtain for negligible fees? I want to be precise about what the evidence does and does not show. There is no comprehensive public performance record for wealth managers as a class, nothing comparable to the databases that track mutual funds. Portfolios differ by client objective, allocation, taxes, withdrawals and risk tolerance, and most private advisers do not publish standardized performance composites.
What we do have is extensive evidence on professional active management generally. S&P Dow Jones Indices has run its SPIVA research comparing actively managed funds to index benchmarks for more than two decades. The U.S. Year-End 2025 Scorecard found that 79% of active U.S. large-cap equity funds underperformed the S&P 500 in 2025. Over ten years, 85.59% underperformed. Over 15 years, 89.93%. In August 2026, S&P extended the same analysis to institutional accounts and separately managed and wrap accounts in its Institutional SPIVA Scorecard. After fees, at least 80% of equity funds and accounts across every format studied underperformed their benchmarks over the ten years ended December 31, 2025. S&P’s Persistence Scorecard adds a further complication: last year’s winning manager rarely stays a winner, and consistent outperformance tends to be fleeting.
None of this proves that any particular wealth manager will underperform after its fees, and it does not create a net of fee performance record for wealth managers as a class. What it does establish, narrowly but with real relevance for anyone paying a recurring advisory fee, is that sustained outperformance after fees is extraordinarily hard to achieve, even for full-time professionals.
That is the question I believe every investor should put to a current or prospective advisor, in plain language:
What is your firm’s specific advantage that justifies your fee versus simply owning low-cost index funds?
Institutional investors would never hire a manager without demanding a rigorous answer to that question. There is no good reason an individual investor should settle for less.
There is also a structural oddity worth naming. An advisor is no less accountable for a decision on a small account than on a large one, yet the percentage model charges more as the account grows, tiered pricing at higher balances notwithstanding. Why should a fee based on a percentage of assets keep rising simply because a portfolio grows, particularly when its holdings barely change?
Planning complexity is sometimes offered as the justification for larger or more complicated clients paying more, but planning is not performed every day, while the asset-based fee runs continuously. Continuous supervision of a discretionary account is a legitimate consideration, but if it creates value commensurate with its cost, an advisor should be able to explain exactly how. And even where percentages decline at higher asset tiers, the underlying question remains unanswered: why should the price of advice stay permanently tied to the value of a client’s assets at all? These are not complicated questions. They are simply questions that rarely get asked, because the percentage has become the default nobody examines.
What the Client Does Not Know
I wrote a book on this subject, published in January 2024, after watching a pattern I could no longer ignore. Before writing it, I questioned clients of investment advisers. Most did not know how much they paid for advice. None could tell me what dollar value their advisor had added relative to a relevant market benchmark. And yet most of them told me they were happy with their advisor. The typical refrain was that “my adviser has made me a lot of money” without ever comparing their good fortune to the broad equity market gains that have been in the mid-teens annually since the Great Financial Crisis that ended in 2009. They also did not know that advisory fees are negotiable, a fact the industry rarely volunteers.
Three numbers were consistently missing from what these clients understood. The first was the ongoing annual advisory fee, even though it was written into the agreement they had signed. The second was the cumulative dollar cost of that fee over the years they expected to stay in the relationship including the lost earnings on the fees paid. The third was what they kept after fees, measured against a benchmark they could have owned on their own at very low cost.
An investor who cannot see all three cannot answer the only question that matters economically:
Is the advice worth what it costs?
Why Clients Do Not Ask
That silence is not ignorance. It has more to do with human behavior than with a lack of information. People prefer the familiar, and financial inertia is powerful. Once a client has settled into an advisory relationship, reopening that decision takes effort and creates uncertainty they would rather avoid.
Clients also tend to believe their advisor is protecting them, and prospect theory, the work of Daniel Kahneman and Amos Tversky, explains why that belief runs so deep. People feel losses far more intensely than equivalent gains, so an advisor who frames the relationship around protecting against loss is speaking to one of the strongest tendencies in investor behavior. That protection can be genuinely valuable. Talking a frightened investor out of abandoning a sound strategy during a market decline is worth something real.
But behavioral reassurance and investment outperformance are two different services, and an investor should know which one they are paying for, and at what price.
The Registrant Is the Exception
Form ADV Part 2A requires an advisor to describe its fees and how they are charged. Form CRS gives retail investors a relationship summary and a list of questions they might ask. Neither one requires the advisor to project the cumulative dollar cost of an asset-based fee over a client’s expected investment horizon, and advisors generally are not required to show clients, on a regular statement, how their net result after fees compares to an appropriate low-cost benchmark.
The investor gets the percentage. What the investor does not necessarily get is the long-term number that percentage adds up to.
The Number, Made Plain
The arithmetic itself is simple. Assume a $1,000,000 portfolio earning 7% annually for 20 years. With no advisory fee, it grows to approximately $3,869,684.
Charge that same portfolio a 1% annual fee on assets, and it grows to approximately $3,167,436, a difference of approximately $702,248.
Raise the fee to 1.5%, and the portfolio grows to approximately $2,865,117, a difference of approximately $1,004,568.
None of this assumes a bad investment decision anywhere along the way. It is simply what compound interest does. And it does not settle the ultimate question, because if an advisor delivers enough incremental value to overcome that cost, after fees and after accounting for the client’s risk objectives, the fee may well be justified. That is exactly why the comparison needs to be made in the first place, rather than assumed away.
The Cost That Is Never Shown
The largest part of this cost is the part easiest to overlook. Every dollar taken from a portfolio to pay an advisory fee is a dollar that can no longer earn the portfolio’s future return. The real economic cost is not just the sum of the checks written to the advisor. It also includes the compounding those dollars would have earned had they stayed invested.
A percentage reads as small on paper. One percent sounds small. One and a half percent sounds small. Compounded across two or three decades and translated into dollars, that same percentage looks like something else entirely. Whatever the intent behind the current disclosure rules, the effect is that investors can enter decades-long advisory relationships without ever seeing a projection of what that number becomes.
A Fiduciary and Incentive Question
None of this is occurring in a regulatory vacuum. The SEC Division of Examinations’ fiscal 2026 priorities continue to emphasize adherence to fiduciary standards, including financial conflicts of interest and whether advice actually serves the client’s best interest. The Division made the point more concrete in its June 9, 2026 Risk Alert, Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest, describing its review of economic incentives that may influence recommendations of products, services or account types, including compensation structures, along with fee and expense disclosures and whether advisors actually charge fees consistent with what they disclosed.
The fiduciary standard requires an advisor to put the client’s interests ahead of its own, and to address conflicts either by eliminating them or by disclosing them fully enough for the client to give informed consent. An asset-based fee creates an economic fact worth sitting with: the advisor earns more by retaining more of the client’s assets under management. That does not prove misconduct. Incentives are not evidence of behavior. But incentives matter, and it is worth naming them plainly.
Take an investor approaching retirement who wants to withdraw a substantial sum to pay off a mortgage, make a large charitable gift, or invest elsewhere. An advisor compensated as a percentage of assets has an economic interest in that money staying put. Or take an advisor whose revenue depends on keeping a fearful client comfortable. That advisor may have an economic reason to favor a portfolio built to minimize emotionally difficult declines, even where a client’s long-term objectives would call for more risk. Given the mid-teens stock market returns since the Global Financial Crisis ended in early 2009, plenty of clients are likely carrying less risk in their portfolios than their time horizon would justify.
Whether any specific recommendation crosses the line into a breach of duty depends on the facts of that case. The incentive itself, though, is simply built into the compensation structure.
A Simple Remedy
There are two parts to fixing this, one immediate and one structural.
The immediate fix is disclosure. An investor paying an asset-based advisory fee should be able to see, in plain terms:
· the advisory fee paid in dollars,
· investment performance after advisory fees,
· performance relative to an appropriate benchmark, and
· a reasonable projection of the fee’s cumulative dollar effect over time, with the assumptions behind it stated plainly.
Advisors should also say plainly that fees are negotiable. Funds and retirement plans already translate percentages into dollar illustrations. Doing the same for an advisory fee is not a radical idea. It simply gives investors the information they need to weigh the cost of advice against the value received.
The structural fix is harder: questioning whether investment advice needs to be priced as a recurring percentage at all. Much of the work that adds durable value, calibrating risk tolerance, defining return objectives, building an appropriate asset allocation, drafting an investment policy, stress-testing scenarios, setting an implementation plan, gets done up front and revisited periodically. It does not have to be paid for by a percentage charged indefinitely against an asset base. One may reasonably consider how attorneys and CPA’s are compensated in contrast to the annual cost of asset based fees by investment advisers.
One alternative is to separate advice from asset gathering entirely: a defined flat fee for the professional work, with additional advice available as needed. Another is for investors with the interest and ability to implement their own portfolio. Low-cost index funds have made both options far more practical than they used to be.
None of this means every investor should fire their wealth manager. It means every investor should know these alternatives exist.
The Question for Investors
Mutual funds provide dollar illustrations of their expenses. Retirement plans provide dollar-based fee disclosures. Yet an investor can pay an investment advisor tens or hundreds of thousands of dollars, sometimes far more, over the life of a relationship without ever being shown at the outset what that recurring percentage adds up to in cumulative dollars.
That should change. Until it does, start your own due diligence. Ask what you pay. Ask what you receive. Ask how your results are measured after fees. Ask what benchmark is appropriate for your portfolio. Ask whether the fee is negotiable. Then ask the question that gets to the heart of it, in plain language:
What is your firm’s specific advantage that justifies your fee versus simply owning low-cost index funds?
Listen carefully to the answer.
Andrew Parrillo is Managing Member of Parrillo Investors LLC, a flat-fee, advice-only registered investment advisor. He has approximately 40 years of institutional investment experience advising endowments and family offices, including 25 years leading Newport Capital Advisers. He is the author of Beat the Wealth Management Hustle, published in 2024 with a foreword by Anthony Scaramucci.
Sources
Securities and Exchange Commission, Division of Examinations, 2026 Examination Priorities, Nov. 17, 2025.
Securities and Exchange Commission, Division of Examinations, “Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest,” Risk Alert, June 9, 2026.
S&P Dow Jones Indices, SPIVA U.S. Scorecard, Year-End 2025.
S&P Dow Jones Indices, SPIVA Institutional Scorecard, Year-End 2025, Aug. 13, 2026.
S&P Dow Jones Indices, U.S. Persistence Scorecard, Year-End 2025.