A fiduciary gets paid in one of a few standard ways depending on the job: investment advisors usually charge an annual percentage of the assets they manage, attorneys and financial planners bill by the hour or quote flat fees, executors and trustees collect commissions tied to the value of the estate or trust, and hedge fund and private equity managers take a cut of investment profits on top of a management fee. The compensation method shapes the incentives, so knowing what you’re paying and why matters as much as knowing the number.
Percentage of Assets Under Management
The most common model for investment advisors is a fee based on assets under management, or AUM. The advisor charges an annual percentage of your portfolio, typically from about 0.25% for automated robo-advisor platforms up to around 1% for a human advisor, with rates climbing to 2% or higher on smaller accounts or specialized strategies. On a $1,000,000 portfolio at 1%, that’s $10,000 a year. Most advisors deduct the fee directly from your account monthly or quarterly rather than sending you a bill.
These percentages almost always drop as your balance grows. Advisors use tiered schedules with breakpoints, charging a higher rate on the first slice of assets and lower rates above each threshold. A firm might charge 1.25% on the first $500,000, 1.0% on the next $500,000, and 0.75% above $1 million. The SEC has flagged breakpoint errors as a recurring compliance problem, finding that some advisors fail to apply the lower tiers correctly or neglect to combine a household’s related accounts when calculating the discount.1U.S. Securities and Exchange Commission. Division of Examinations Observations: Investment Advisers Fee Calculations
If you and your spouse or children hold accounts at the same firm, ask whether the firm “households” those balances for breakpoint purposes. Applying the tiers to each account separately instead of the combined total can quietly cost you thousands a year.
Hourly Rates and Flat Fees
Attorneys, CPAs acting as fiduciaries, and some financial planners charge by the hour or quote a flat fee for a defined piece of work. Hourly rates for fiduciary-level professionals generally run between $200 and $600, depending on complexity and experience. An estate planning attorney drafting trust documents will typically bill at a different rate than a financial planner building a retirement projection.
Hourly billing produces detailed time records. Expect invoices broken into six-minute increments showing exactly how long the professional spent on research, calls, document review, and correspondence. Flat fees work differently: you agree on a fixed price for a specific deliverable, such as a comprehensive financial plan for $2,000 to $5,000, and pay that amount regardless of hours spent. Flat fees give you cost certainty; hourly billing suits open-ended projects where the scope is hard to predict.
When an attorney or planner asks for a retainer, that upfront payment goes into a trust account, not the professional’s operating account. The money stays yours until the work is actually performed. As the professional completes tasks, they draw from the trust balance and send you a statement showing what was earned and what remains. Any unearned portion is refundable, even if your agreement calls the retainer “nonrefundable.”
Executor and Trustee Commissions
When someone dies, the executor or personal representative who settles the estate is entitled to compensation from the estate’s assets. How that compensation is calculated depends on the state. Roughly half of states set commissions through statutory sliding scales, where the percentage decreases as estate value increases. A common pattern starts around 4% to 5% on the first $100,000 and steps down from there. The remaining states leave it to the probate court to determine what counts as “reasonable compensation,” generally looking at the estate’s complexity, the time involved, and what executors in the area have historically been paid.
These commissions are treated as administrative expenses, meaning the executor is paid before heirs receive their distributions. The attorney assisting with probate often receives a separate fee on a similar scale. In statutory states, both the executor’s and the attorney’s compensation follow the schedule set by law for “ordinary services.”
Extraordinary Services
The statutory commission or reasonable compensation covers routine administration: inventorying assets, paying debts, filing the final tax return, and distributing property. When the job goes beyond that, the fiduciary can petition the court for additional compensation. Selling real estate, running a decedent’s business, defending a contested will, and handling tax audits or litigation all qualify. The court sets the extra amount based on the time, skill, and difficulty involved. This is where administration costs can spike, particularly when beneficiaries fight or the IRS audits the estate tax return.
The Fee Waiver Trap
Family-member executors often waive their commissions when they’re also beneficiaries. The logic seems obvious: why pay yourself a fee out of assets you’ll inherit anyway? But executor commissions are taxable income, while an inheritance generally isn’t. Depending on the estate’s size and the executor’s tax bracket, waiving the fee can save money overall, or it can cost more than it saves. Work through the math with the estate’s attorney before signing a waiver.
Ongoing Trustee Fees
When a bank or trust company manages an ongoing trust, it charges an annual fee calculated as a percentage of trust assets, typically between 0.5% and 2% per year. Some institutions add a separate charge based on the trust’s annual income. Unlike executor commissions, which end when the estate closes, trustee fees recur every year for as long as the trust exists. On a $2 million trust, even a 1% annual fee means $20,000 a year in perpetuity. Individual trustees serving in a non-professional capacity sometimes charge less or waive fees, but they carry the same legal liability as an institutional trustee.
Performance and Incentive Fees
Hedge funds and private equity firms use a model often called “2 and 20”: a 2% annual management fee on committed capital plus 20% of the fund’s profits. The management fee covers operating costs regardless of performance; the 20% incentive fee, known as carried interest, is where the real money sits. Both figures have held as the industry median for years, though some newer or smaller funds negotiate lower terms.
Federal securities law restricts who can agree to performance-based fees. Under the Investment Advisers Act, an advisor can only charge this way if the client is a “qualified client,” meaning either at least $1,100,000 under the advisor’s management or a net worth exceeding $2,200,000. The SEC adjusts these thresholds for inflation roughly every five years; the next adjustment is expected around May 2026.2U.S. Securities and Exchange Commission. Performance-Based Investment Advisory Fees
Hurdle Rates and High-Water Marks
Two contract provisions protect investors from paying incentive fees on mediocre or volatile results. A hurdle rate sets a minimum return the fund must clear before the manager earns any performance fee. If the hurdle is 8% and the fund returns 6%, the manager collects the management fee and nothing extra.
A high-water mark prevents double-dipping after a loss. It tracks the fund’s peak value, and the manager can’t collect a performance fee again until the fund surpasses that previous high. If you invest $100,000 and the fund grows to $125,000, the manager earns a $5,000 performance fee on the $25,000 gain. If the fund then falls to $75,000, the manager earns no incentive fee until it climbs back above $125,000. Without this clause, a fund could lose money, recover to break-even, and charge you a performance fee on the “gain” that merely erased the prior loss.
How These Fees Are Taxed
The tax picture for fiduciary fees changed permanently in 2025, and most of the changes hurt individual investors. Investment advisory fees paid by individuals used to be deductible as miscellaneous itemized deductions subject to a 2% adjusted gross income floor.3eCFR. 26 CFR 1.67-1T – 2-Percent Floor on Miscellaneous Itemized Deductions The Tax Cuts and Jobs Act suspended that deduction starting in 2018, and the One Big Beautiful Bill Act made the elimination permanent. There is no longer any individual federal tax deduction for investment management fees, financial planning fees, or similar advisory costs.
Estates and trusts are treated differently. Fiduciary administration fees that wouldn’t exist if the property weren’t held in a trust or estate remain deductible on the entity’s income tax return under a separate provision of the code. Executor commissions and trustee fees paid out of an estate or trust still reduce the entity’s taxable income, even though the same type of advisory fee is permanently non-deductible for an individual.
Executor commissions and probate attorney fees also reduce the value of a taxable estate for federal estate tax purposes, provided the amounts are allowable under state probate law.4Office of the Law Revision Counsel. 26 USC 2053 – Expenses, Indebtedness, and Taxes For estates large enough to owe federal estate tax, this deduction meaningfully offsets administration costs. The estate can’t double-count the same expense on both the estate tax return and the income tax return, so the executor or attorney needs to decide which return produces more savings.
Disclosure and What to Read Before You Hire
Registered investment advisors are required under the Investment Advisers Act to deliver a written brochure, Form ADV Part 2A, that spells out how they’re compensated, what conflicts of interest exist, and how those conflicts are managed. The SEC treats this as a floor: because advisors owe a fiduciary duty, they must disclose any material fact that could affect the advisory relationship, whether or not Form ADV asks for it specifically.5U.S. Securities and Exchange Commission. Form ADV Part 2 If you’re working with an advisor and haven’t read their ADV, you’re skipping the single most useful document for understanding what you’re actually paying. Filings are publicly available through the SEC’s Investment Adviser Public Disclosure database.
For fiduciaries managing retirement plans, ERISA sets its own compensation rules. A plan fiduciary or service provider can be paid for necessary services only if the compensation is reasonable, and service providers expecting to receive $1,000 or more must give the plan’s responsible fiduciary written disclosure of all direct and indirect compensation, including payments from third parties like fund companies or platform providers.6Office of the Law Revision Counsel. 29 USC 1108 – Exemptions From Prohibited Transactions
Fee-Only Versus Fee-Based
These two terms sound almost identical and describe fundamentally different structures. A fee-only advisor is paid exclusively by the client through AUM fees, hourly charges, flat fees, or retainers. No commissions, no kickbacks from product providers, no third-party compensation. A fee-based advisor charges advisory fees and also earns commissions or other payments from the products they recommend. Commission income creates a structural incentive to recommend products that pay the advisor more, even where fiduciary duty technically requires prioritizing your interests.
Neither label tells you whether someone is legally a fiduciary. “Fee-only” describes how the advisor is paid; “fiduciary” describes how the advisor must behave. An advisor can be fee-only without owing a fiduciary duty, and a fiduciary can earn commissions in certain contexts. Fee-only compensation eliminates the most common conflict, which makes it easier to trust that the advice is genuinely in your corner.