Would You Pay Your Home Builder Every Year...Forever?
- 5 days ago
- 4 min read
Although stressful, building a home is usually a pretty straight-forward process.
You hire a company to design, organize, and construct your home based on your specific inputs as well as some less-refined abstract desires for the finished product…how you want to feel in the home as well as what you want your home to provide.
You may select the builder because you admired their work; perhaps that company has even built some of your friends’ homes. Regardless, the company collects your ideas, qualifies and quantifies them, and presents you with an architectural drawing...a plan and an estimate. You agree on the cost; work begins; the project is completed; and you move in. For the most part, everything feels fair and transparent.
The fee for this service is built into the pricing based on the scope of work and the time taken to complete the project. It’s agreed upon by all.
Now imagine the builder’s compensation is an ongoing annual fee based on the value of the home- your home that you had built with your money. The builder however, retains exclusive rights to handle the maintenance and all aspects (control) of the home until such time as you decide otherwise.
The fee is 1.4% of the value of the home on December 31st of each year. Let’s call that…
HUM (Home Under Management).
Now imagine your builder comes back the next year and says:
“Your home has appreciated 5% —so, as per our agreement, I’ll be charging you 1.4% of its value.” *It probably won’t be announced in such a forthright manner
EXAMPLE: $500,000 home at construction, 1st year’s fee: $7,000
Year 2 value $500,000 + 5%* = $525,000, 2nd year fees: $7,350…and so on
*While the historical average annual US Home’s price appreciation is ~5%, the historical average annualized return of the S&P 500 is ~10%.
No new construction.
No ongoing improvements that you can see (just the money you’ve added).
No additional labor beyond a couple of meetings.
It’s a recurring fee… based on your home's value.
Would you agree to that fee ricing model?
But that’s exactly how many investors pay for financial planning and investment management.
It’s the financial industry’s “standard” pricing model- and it’s based on what’s called AUM…Assets Under Management.
*According to Kitces.com, the average “all-in” fee ranges from 1% to 1.5%.
The AUM Model: Familiar, But Worth Questioning
Assets Under Management (AUM) fees typically average around 1.0%–1.5% annually. On the surface, it feels simple (as noted in a common TV ad- “We make money when you make money”):
As your portfolio grows, the company “earns” more
As your portfolio declines, the company “earns” less
But underneath that simplicity is a deeper question:
What exactly are you paying for—and how does the value scale with your wealth?
Back to the Builder Analogy
If your builder were truly earning 1.4% every year based on your home’s value, you might reasonably expect:
Ongoing renovations as technology improves
Upgrades when better materials become available
Energy-efficiency improvements over time
Active maintenance and modernization
In other words: continuous, increasing value tied to the fee. But in most AUM relationships, that’s not how it works. *Note: Most business decisions are made for the benefit of the company and then linked to increased value for the consumer in order to justify a price increase. 1.4% is what they want to maximize profit; the services you receive are how they justify it.
The portfolio grows…The fee grows…But the actual work doesn’t usually increase proportionally.
Does More Money Mean More Work?
Managing a $250,000 portfolio versus a $2.5 million portfolio doesn’t typically require 10x the effort*. Yet under an AUM model, the cost to the client may increase by that magnitude.
So it’s fair to ask:
Is the advisor doing significantly more work as your account grows?
Are you receiving more planning, deeper insight, or expanded service?
Or are you simply paying more because your assets are worth more?
What Are You Really Paying For?
At its best, financial advice and asset management deliver value far beyond investment selection:
Comprehensive financial planning
Tax strategy and coordination
Retirement income planning
Risk management and estate considerations
Behavioral coaching during volatile markets
These are high-value services—but importantly, they are not inherently tied to portfolio size. They should be part of the plan regardless of portfolio size!
A great financial plan doesn’t become 5x more complex just because your account grew 5x.
The Misalignment Problem
The core issue isn’t that advisors get paid; It’s how they get paid.
When fees are tied directly to portfolio value:
Compensation increases regardless of additional work performed
Incentives can become misaligned with client outcomes
Clients may overpay simply due to market appreciation
Risk can be elevated beyond the client’s need or tolerance
Investment selections might be made based on trailing commissions offered to the advisor
It raises a simple but important question:
Should cost be based on value delivered—or just value accumulated?
A Better Way to Think About It
If you wouldn’t agree to pay your home builder indefinitely based on your home’s rising value…
Why would you accept that structure for your financial life?
Financial advice should be:
Transparent
Aligned with the services provided
Based on the complexity of your unique situation—not your balance
Ultimately, what matters most isn’t how large your portfolio becomes…
It’s whether you have a clear plan, disciplined execution, and confidence in your financial future.
Final Thought
Investment management is important—but it’s only one piece of the puzzle.
A portfolio doesn’t build a life. A comprehensive plan does.
And the way you pay for that plan should make sense.
If this resonates with you, there’s a good chance we see financial planning and investment management the same way—and you’ll feel right at home with Champion Financial Planning.
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