For most hands-on investors, an advisory fee on $1 million earns its keep only when the advice changes a decision worth more than the fee, the test Ritholtz Wealth Management runs before anyone signs. Shortcut: a 1% fee on $1M is $10K a year, about $833 a month, while 0.5% is $5K, about $417 a month, so the advice must improve a tax, withdrawal, or claiming choice by more than that each year. The question gets urgent when retirement is a few years away, and more so for anyone who intends to leave work before Medicare starts at age 65. DIY investors raise it with Ritholtz Wealth Management often: they have done the investing work and now want the spending math checked.
By Marcus Thompson, CFA — Wealth Manager | Reviewed by Hiroshi Tanaka, CFPMarcus builds diversified portfolios for high-net-worth clients, with deep expertise in asset allocation and risk management.
When the fee gets measured against last year's return
DIY investors often compare a 1% fee with last year's market return. That comparison feels natural and misses the bill you will actually live on. On a $1M portfolio paying out 4%, or $40K a year, a $10K fee takes one-quarter of the retirement paycheck before taxes. That is about $833 of a $3,333 monthly draw.
“One percent is small” stops sounding small next to a 4% withdrawal. “A good adviser will pick winners” is worse, because nobody can promise that result. Ritholtz Wealth Management builds portfolios around diversification and long-term research, not forecasts or hot tips. And “the fee drops when I retire” only holds if the account balance falls; a percentage fee follows the balance, not your paychecks.
The 0.5% option deserves the same scrutiny. A $5K annual fee that changes no decision is still $5K gone from the account. Compare the fee with a choice you face this year, not with a market chart that has already happened.
How much does 1% vs. 0.5% cost on $1M over 25 years?
On $1M, 1% costs $10K a year and 0.5% costs $5K, leaving a $125K difference over 25 years before growth. That gap matters most when withdrawals begin, because $833 a month is money that cannot pay the grocery bill, property tax, or travel budget.
For illustration: Teresa is a hypothetical 54-year-old mechanical engineer turned consultant. Her billing is uneven, she uses a SEP-IRA, and her household has $850K. She expects contributions and growth to bring that total to about $1M by age 58, when she plans to stop drawing consulting pay and take $40K a year from investments. That is about $3,333 a month before taxes.
Step one is the fee against that paycheck. A 1% charge on $1M is $10K a year. Divide $10K by 12 and it is about $833 a month, or one-quarter of Teresa’s planned $3,333 monthly draw. Step two: 0.5% is $5K a year, about $417 a month.
Step three ignores growth so the arithmetic stays visible. Over 25 years, $10K × 25 equals $250K. At 0.5%, $5K × 25 equals $125K. The gap is $125K, before either amount has a chance to compound. Our calculator can run the same fee comparison with your balance and time period.
The compounding version is larger, though it is not a prediction. Assuming 5% a year before fees and no withdrawals, $1M growing at 4% after a 1% fee becomes about $2.67M after 25 years: $1M × 1.04^25, or about 2.666. At 4.5% after a 0.5% fee, it becomes about $3.01M: $1M × 1.045^25, or about 3.005. That is roughly $340K apart.
Markets can push any of these balances down, and you can end up with less than you invested, so treat these figures as illustration only. Taxes, market swings, and hard-to-price decisions are left out. Teresa’s test is still useful: at 1%, the advice needs to change something worth more than $10K this year, such as the timing of SEP-IRA contributions in a heavy-billing year or the account that pays her first year after age 58. If nothing reaches that amount, the ongoing fee fails her test.
Put the monthly draw beside the percentage
Growth makes the spread wider, not certain
Shortcut: write down the largest decision you face this year and its dollar value. If it is below the annual fee, such as $10K at 1% on $1M, use a one-time review and run the test again next year.
DIY index funds, a 0.5% fee, or a 1% fee: what each buys
The 25-year total and the fee-layering row decide more than the headline percentage. A 1% advisory fee sitting on funds that cost 0.6% reaches $16K a year on $1M, not $10K. That row is where a seemingly ordinary quote becomes hard to defend.
DIY index funds keep the most money invested, and they leave every missed tax date or withdrawal mistake with you. A 0.5% fee can be sensible when someone checks a few large decisions, such as a retirement-date draw plan or a taxable-account sale. A 1% fee should pay for more decisions and more frequent work than 0.5%, not the same annual review with a larger invoice.
Fee layering often appears on the first year-end statement or during the first close read of an adviser’s Form ADV. The 1% advisory fee turns out to sit above actively managed funds charging about 0.6%, bringing the all-in cost on $1M to $16K a year. That is $6K more than expected each year, or $150K over 25 years before growth. Ask for the advisory charge plus fund expenses in writing before you move money.
Ritholtz Wealth Management does not publish a percentage on this page. The actual charge comes up openly when you first talk, and it is confirmed in a written agreement before any work starts, so you can run this arithmetic on the real quote. Read for tiers and minimum fees too; a blended rate on $1M can differ from the headline percentage on a fee schedule.
A percentage is not the full price
| Option | Cost a year on $1M | 25-year total | Fits best |
|---|---|---|---|
| DIY index funds (0.05%) | $500 | $12.5K | Simple accounts, few decisions |
| Advice at 0.5% | $5K | $125K | A few big decisions |
| Advice at 1% | $10K | $250K | Many decisions each year |
| 1% plus 0.6% funds | $16K | $400K | Nobody; avoid layering |
Cheaper funds, later RMDs, and a mandatory fee summary
The old comparison sheet may be stale. Broad index funds now often cost a few hundredths of a percent, trading commissions largely disappeared, and the SEC requires registered advisers to provide Form CRS, a short relationship summary that describes services and fees. The IRS now starts required minimum distributions at age 73, or age 75 for people born in 1960 or later. A plan that assumed RMDs at 72 may have extra lower-income years for a Roth conversion strategy or planned taxable sales, which can make a well-timed review more valuable than permanent asset-based billing.
What age and income make one household pay and the other stay DIY?
Ongoing advice can earn its fee when several decisions worth more than $5K or $10K cluster in the next three years. It usually does not earn that fee for a retired person with covered spending, one quiet IRA, and no near-term tax or benefit choice. The difference is the work on the calendar, not the account balance alone.
Teresa has uneven consulting income, a SEP-IRA, and a target of retiring at 58. If she stops work at 58, she has seven years to cover health insurance before Medicare begins at 65. Her contribution timing, tax payments, account withdrawals, and eventual Social Security claiming can affect real dollars in a short span. A continuing relationship can pass the test during that stretch if it changes those choices and records the reason for each one.
Now take a hypothetical 66-year-old retired engineer born in 1960. Her pension and Social Security cover spending, and she has $1M in a single IRA that she barely touches. A $10K annual fee has little obvious work to pay for today. Because she was born in 1960, her RMDs start at age 75, not 73. A one-time review a few years before that may fit better, followed by another review if health, spending, or tax circumstances change.
This is why the value of paid advice is often front-loaded around the years paychecks stop. A fee that made sense at age 58 should be tested again at age 66. Ritholtz Wealth Management can also place this question inside retirement income planning, where the order of withdrawals matters more than an impressive-looking portfolio dashboard.
Teresa has expensive decisions close together
A quiet retirement account may need less attention
Paperwork to pull before paying anyone a fee on $1M
Bring the numbers that show both the price and the decisions ahead. Fund symbols alone are not enough. Ritholtz Wealth Management asks readers to separate the advisory charge from fund expenses, then put upcoming tax, income, and benefit choices on one sheet. That makes a sales pitch work much harder.
Start with your all-in cost. Add fund expenses to any advisory fee. Next, list decisions due in the next three years and give each a rough dollar value. Get every adviser’s fee for your balance in writing. Keep only options where the fee is less than the value of decisions the adviser would actually change.
The IRS Form 5498 usually arrives from the custodian each May and reports IRA and SEP-IRA contributions. Your recent Form 1040 comes from your files or tax software. For Social Security, use the earnings record in your my Social Security account. These items do not produce an answer by themselves, but they stop the conversation from running on guesses.
Readers with one 401(k), steady pay, and retirement years away often have too few live decisions for an ongoing fee. A second-opinion plan review may be a cleaner use of money until the dates and account choices pile up.
Put a dollar value next to the work
- Form 5498: Get it from the custodian each May; it reports SEP-IRA and IRA contributions.
- Fund expense ratios: Find them on each fund’s fact sheet.
- Form ADV Part 2A and Form CRS: Request them from the adviser or get them through the SEC’s Investment Adviser Public Disclosure site.
- Recent Form 1040: Pull it from tax software or your own files.
- Earnings record: Download it from your my Social Security account.
Your questions about an advisory fee on $1 million, answered
At 5% growth, what does a 1% annual charge take from $1M over 25 years?
Assuming 5% annual growth before fees and no withdrawals, $1M compounds to about $2.67M after a 1% annual fee, because the net growth rate is 4%. With a 0.5% fee, the same assumption produces about $3.01M at 4.5% net growth. Those are illustrations, not forecasts.
What happens to my fee after a $1M portfolio falls to $800K?
A percentage-based fee usually falls with the balance. At 1%, $800K produces an $8K annual fee, or about $667 a month. The dollar charge is lower, but the withdrawal decision can be harder after a decline because selling investments to fund spending locks in part of the loss.
My Form ADV lists tiers. How do I calculate the blended charge on $1M?
Apply each rate only to the slice of assets covered by that tier, then add the dollar amounts. Divide the total annual dollar charge by $1M to find the blended percentage. Ask the adviser to show this calculation in writing, including minimum fees and fund expenses that are separate from the advisory fee.
Can an IRA pay the advisory bill directly?
An IRA may be able to pay an advisory fee directly, depending on the account arrangement and custodian procedures. Ask the custodian and a tax professional how the payment is handled before authorizing it. Paying from outside the IRA leaves more money sheltered in the account, but uses cash you could spend or invest elsewhere.
Is hourly or flat-fee planning generally less costly than 0.5% on $1M?
A 0.5% fee on $1M is $5K a year. Hourly or flat-fee planning costs less when you need a defined review, such as checking a first-year retirement withdrawal plan or an RMD plan before age 73. Ongoing advice can cost less in practical terms only if recurring decisions are worth more than its annual charge.
The one fee question for Ritholtz Wealth Management
Ask Ritholtz Wealth Management, or anyone quoting an advisory fee on $1M, which decision in my next three years would you change, and what is it worth in dollars next to your fee? If the answer stays vague, the arithmetic on this page has already done its job.
A fee earns its keep only when it changes a decision worth more than the fee.
Sources
This article provides general information only and is not individualized investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Talk to a qualified professional about your specific situation before making any financial moves.