The truth about fee-only financial advisors: what clients should know

How fee-only models actually work

The most common private-client fee is an AUM charge, typically 0.5% to 2% a year of the portfolio the firm advises or manages. The percentage often tapers as assets rise. It is simple to invoice and it aligns the firm with keeping the relationship. It also means you pay more in francs as markets rise, even if the firm did no extra work that year.

Hourly consulting is cleaner for a defined task — a second opinion, a pension-or-lump-sum note, a mortgage tender. Rates for senior private-client work in Switzerland commonly sit in the mid-hundreds of francs per hour. The risk is scope: an “hour” becomes a project, and the meter keeps running.

A flat retainer (quarterly or annual) covers a named set of meetings and documents. It is predictable. It is also easy to under-specify: if the retainer does not say how many written analyses, reviews and calls are included, you are buying an open relationship at a closed price.

On a CHF 1 million portfolio, an AUM fee of 0.5% to 2% is CHF 5,000 to CHF 20,000 a year, every year. Over a decade, before compounding, that is CHF 50,000 to CHF 200,000. Ask for the same number in francs, not only in basis points, and ask whether cash, mortgages and assets held “for reporting only” sit inside the fee base.

The “no commissions” advantage

When the firm earns nothing from the product, it can recommend a low-cost index fund as easily as an in-house strategy. That is the real advantage: product selection is no longer a sales process. Conflicts of interest shrink. Suitability documents become easier to read because they are not also a prospectus for something the adviser is paid to place.

The offset is the ongoing bill. A commission is often paid once, at purchase. An AUM fee is paid every year you stay. Over a long holding period the fee-only invoice can exceed the commission you avoided — especially if the portfolio is large, the AUM rate is not tapered, and the underlying funds still charge their own expenses. “No commissions” is not the same sentence as “low cost”.

What fee-only does not always tell you

Fund expense ratios sit underneath the advisory fee. A 1% to 2% ongoing charge in an active fund is not the adviser’s fee and often does not appear on the same line. It still compounds against you. Ask for a look-through cost: advisory fee plus weighted fund TER plus estimated transaction costs.

Dealing spreads, stamp taxes and custody charges are set by the bank, not by the adviser. They are still your money. Performance fees on alternatives — private equity, hedge funds, some structured products — can add another layer when a manager beats a hurdle. Currency conversion for a Swiss-franc household that holds euro or dollar assets is another quiet drain; even a fraction of a percent on each FX ticket adds up.

Add those lines together and a “1% fee-only” relationship can cost well over 2% all-in. In some years that is more expensive than a commission-based purchase of a cheap, buy-and-hold index portfolio. The right question is not “are you fee-only?” It is “what is the total cost of ownership, in francs, this year?”

Questions to ask your adviser

Ask for the total fee structure in one document: AUM, hourly, retainer, minimums, VAT, and what happens if you leave mid-year. Ask whether cash and “supervised but not managed” assets are in the base.

Ask for underlying fund expenses as a portfolio-weighted TER, not a range. Ask how performance is measured net of all fees, including custody and FX. Ask for the FinSA fee disclosure and the client brochure before you sign a mandate — not after the first trade.

If the answers arrive as marketing slides instead of numbers, treat that as information too.