The $500,000 fee trap: Why smart investors are switching to 0% AUM models

It's no secret that building wealth is hard work. But did you know that managing wealth can, at times, cost you more than many people expect? For high-income households with complex wealth, fees tied to your investment strategies, such as Assets Under Management (AUM) fees, can compound over time—draining substantial amounts from your portfolio.

Here's the good news. A 0% AUM fee structure can keep more of your hard-earned money where it belongs—working for you. Stick with Range, and we'll show you how AUM fees work, how they eat away at your wealth, and how choosing a 0% AUM solution could save you hundreds of thousands of dollars in the long run.

What Are AUM Fees?

Assets Under Management (AUM) fees are the percentage-based charges that traditional financial advisors deduct from your portfolio annually. This fee is calculated based on the total value of your investment portfolio. Sounds small, right? But even a seemingly tiny percentage can have a significant impact on your financial growth.

Here's an example:

• Portfolio Value: $500,000
• AUM Fee: 1% annually
• Fee Charged: $5,000 per year

Now imagine if your portfolio grows to $1 million. The AUM fee also doubles to $10,000 per year. And the bigger your portfolio gets, the bigger the annual fee becomes. While this might not seem like a huge expense year to year, AUM fees reduce the amount of money you have available to reinvest—slowing your long-term growth.

The Power of Compounding (and Its Two Sides)

Compounding Returns

Compounding is one of the most powerful forces in the investment world. When you invest, your money earns returns. Over time, not only do your initial investments grow, but your returns generate additional returns. This cycle multiplies your wealth, creating exponential growth.

For example, if you invest $500,000 and earn a 7% return in the first year, you'll gain $35,000. The following year, you'll earn 7% on $535,000—compounding your wealth.

Compounding Fees

Unfortunately, fees also compound, but not in a good way. AUM fees don't just reduce your returns for one year—they also eat into the base amount available for compounding in subsequent years.

Imagine climbing uphill with a heavy backpack. That's what compounding fees do—they slow down your progress year over year. This is why even a "small" 1% fee can have a major impact on the long-term growth of your portfolio.

How Fees Add Up Over Time

To grasp the impact of AUM fees fully, it's crucial to understand their cumulative effect over decades.

A 25-Year Scenario

Let's compare two portfolios—one with a 1% AUM fee and another with a 0% fee structure. Both start with an initial investment of $500,000, earning an average return of 7% annually over 25 years.

• Portfolio with 1% AUM Fee

After 25 years of deducting 1% annually, the future value is approximately $2.15 million.

• Portfolio with 0% AUM Fee

Without any fees eating into the growth, the portfolio reaches approximately $2.71 million.

That's a shocking difference of nearly $560,000.

What happened here? Instead of compounding to reinvest, the 1% AUM fee reduced both annual returns and the base portfolio value available for future growth, creating what John Bogle, the founder of Vanguard, aptly called "the tyranny of compounding costs."

Why Choose 0% AUM Fees?

Switching to a 0% AUM fee model allows you to reclaim more control over your wealth and maximize your portfolio's potential. But beyond the numbers, this approach provides other valuable benefits:

• Transparency. With a flat-fee structure or 0% AUM services, you gain clear visibility into your costs rather than paying fees that scale with your portfolio.
• Alignment of Interests. Fee-only models prevent conflicts of interest, as your advisor's success doesn't hinge on how much you invest.
• A Greater Share of Returns. By eliminating ongoing fees, every dollar of growth from compounding works fully in your favor.

What If You're Already Paying AUM Fees?

Many traditional advisors rely on AUM fees as their primary compensation model. If you're already paying AUM fees, here are some steps to consider:

1. Calculate the True Cost. Use an online AUM fee calculator to visualize how much you're paying annually and over time.
2. Evaluate Alternatives. Research wealth advisors who offer 0% AUM fees or flat-fee pricing. Look for transparent, fiduciary-based services.
3. Make the Switch. Transitioning to a flat-fee advisor likely requires some effort (such as transferring accounts), but the long-term savings can far outweigh the initial inconvenience.

Take the Next Step Toward Financial Freedom

It's time to leave compounding costs behind and start unlocking your portfolio's true potential. Switching to a 0% AUM fee structure keeps more of your wealth in your hands—where it belongs. Whether you're preparing for retirement, saving for major milestones, or building generational wealth, eliminating unnecessary fees ensures your money works harder for you.