How much in advice fees should a million-dollar client pay?

The most coveted clients in the investment advice business may be paying excessive fees.

High net worth clients – let's say people with investable assets of $1-million and up – typically pay a much lower advice fee than less wealthy individuals. It's basic economics – a smaller percentage of a huge portfolio makes advisers and their firms more than a larger percentage of a small portfolio. But high net worth investors may still be paying more than they should. If you're being charged a fee of more than 1 per cent, this column's for you.

"A household with $1-million or more in investable assets should be able to get good (read: comprehensive) advice for under 1 per cent," John De Goey, a veteran portfolio manager and author of The Professional Advisor, told me in a recent e-mail. Mr. De Goey was responding to a recent column on investors who are frantic to lower their costs.

No matter how big your portfolio is, it's near impossible to get a sense of how the fees you pay stack up against what firms charge. Most firms don't publish fees on their websites, so you have to contact them directly for information. Even then, fees might be subject to negotiation. Our investment fee disclosure tool was built to help people get a sense of how their fees compare.

Of the people who used our tool and indicated they have a fee-based account, 40 per cent are paying 1 to 1.24 per cent in fees for a portfolio of $1-$2-million. Twenty-eight per cent are paying 1.25 to 1.74 per cent, while 15 per cent are paying less than 1 per cent.

Mr. De Goey said investment products are "wildly overpriced," while advice costs are modestly over-priced. His sense of advice fees is that 1.5 per cent is the high end, while 1.25 per cent is pretty standard. He charges 0.95 per cent for advice on both investments and financial planning on a $1-million account.

Strong advice on investing plus estate and tax planning might justify fees above 1 per cent for a seven-figure portfolio. But let's remember that 1 per cent of $1-million is $10,000. "I simply do not accept that an adviser cannot profitably offer sound, comprehensive advice to a single family if that family 'only' pays $10,000 a year for that service," Mr. De Goey writes.