Wealth management is a service that financial institutions provide for clients with higher net worth and income, and most wealth managers have fee schedules that define the costs of asset management as well as charges for account handling and other private client services. Because wealth management involves a host of ancillary services, it can be hard for clients to understand exactly what's included in their wealth-management fee. The answer depends on the particular arrangement between you and your wealth manager, but the key point is that you should never expect a fee arrangement to cover absolutely everything the wealth-management company will arrange or do on your behalf.

How wealth-management fees work

Different wealth managers charge clients in different ways. The most common involves charging a percentage of the assets that the wealth manager has under management. Fee schedules often have sliding scales that reduce the percentage charged for wealthier clients. For instance, clients with $1 million under management typically pay around 1% of assets per year, according to one industry study, while those with $10 million pay closer to 0.7%.

Other companies charge fixed annual fees. The same survey suggests that typical fees might range $12,500 for a $1 million client and $55,000 for someone with $7.5 million or more. Those numbers are roughly in line with the normal percentage range for those who charge percentages of managed assets.

Finally, a few companies charge hourly rates for their services. The more help you need, the more you'll pay, but if you have relatively simple needs, then this way of working can save money.

You'll find several companies that combine aspects of these models. For instance, a wealth manager might charge a percentage of assets under management for investing services, while adding surcharges for other advice on unrelated matters like estate planning.

A spread-out collection of stock certificates, overlapping each other.

Wealth managers do more than just pick stocks. Image source: Getty Images.

What do percentage fees leave out?

If your wealth manager charges fees based on a percentage of assets, you'll want to find out exactly what's covered. Most wealth managers will include the investment advice that the advisor provides, the cost of doing transactions in your account to implement that advice, and the cost of account maintenance and reporting responsibilities in the fee. Sometimes, the fee will cover only the direct efforts involved in picking and managing investments, and you might have to pay separate charges for account maintenance and ancillary services.

There are also some things that percentage fees almost always leave out. They include:

  • Underlying expenses charged by mutual funds and exchange-traded funds. Even though these costs are directly associated with asset management, it's rare for wealth managers to give you credit for what goes directly to mutual fund and ETF managers through their own annual expense ratios. With many actively managed funds charging 1% or more, these additional expenses can double your total investing costs with a wealth management company.
  • Costs of outside professionals who provide assistance on specialized areas, such as accountants, attorneys, and sometimes insurance agents.

You'll also want to get a sense about what your wealth manager will do in extraordinary situations. High-net-worth clients often want wealth managers to be on call and available during particularly stressful situations, such as family illnesses. Wealth-management companies vary in how they handle such situations, but the last thing you want when difficult times arise is an unexpected bill.

Get your money's worth

Despite its name, wealth management goes well beyond simply managing your money. Great wealth-management companies build relationships between professionals and clients, becoming extremely aware of personal issues and offering advice far outside the financial realm. Given how complicated the lives of high-net-worth families can be, those services deserve compensation.

The key thing to do is to make sure that what you pay for wealth management matches up with the service that you receive. Fee schedules can be a starting point, but what will make or break a wealth-management relationship is whether the services provided give clients peace of mind and confidence that they're getting the oversight they need to feel secure with their finances.