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Roth Conversions and the AUM Fee: How an Advisor's Pricing Can Shape Retirement Tax Advice
Fees and incentives
Retirement tax planning is the part of financial advice where the advisor's fee structure pulls hardest against the client's interest. Almost every good recommendation in this field makes the portfolio smaller, and a percentage fee is paid on the portfolio. Honest advisors work under that pull every day; the pull is still there.
Published September 11, 2026 by Flames Financial Planning. 9 min read.
Short answer: An advisor paid 1% of assets on a $3,000,000 portfolio earns $30,000 a year, and less after every recommendation that moves money out of the accounts: paying conversion tax from the portfolio, spending down an IRA before Social Security, giving appreciated stock to charity, paying off a mortgage, buying an income annuity, or funding a grandchild's 529. The fee does not make the advice wrong, and many percentage-fee advisors give it anyway. But it means the recommendation and the advisor's income point in opposite directions, and a flat fee is the simplest way to remove that. Whatever the structure, ask how the advisor is paid, what the recommendation does to that payment, and whether the plan actually contains the moves that shrink the portfolio.
The mechanics
What a Percentage Fee Is Paid On
An assets-under-management fee is a percentage, typically around 1% a year at the portfolio sizes this article concerns, charged on the value of the accounts the advisor manages. Money that leaves those accounts, for any reason, stops paying the fee.
That is an unremarkable arrangement for investment management, where the job is to keep the money invested well. It becomes remarkable in retirement tax planning, where the job is often to move money out: out of a traditional IRA into tax paid now, out of the portfolio into a mortgage payoff or a charity, out of the managed accounts into a Roth conversion's tax bill. The fee is silent about which is right. It simply falls when the money leaves.
| Common retirement-tax recommendation | What it does to the managed assets | Effect on a 1% fee |
|---|---|---|
| Roth conversion of $300,000 in the 24% bracket, tax paid from the portfolio | $72,000 leaves the accounts to pay the tax | Fee falls by about $720 a year, for life, plus the growth that money would have earned |
| Spending from the IRA in the early years to level income | Portfolio shrinks faster in the early years than under 'taxable first' | Fee falls every year the IRA is drawn earlier than it had to be |
| Qualified charitable distributions after 70½ (up to $111,000 a year in 2026) | Money leaves the IRA for charity | Fee falls on every dollar given |
| Giving appreciated stock instead of cash | Positions leave the brokerage account | Fee falls on the positions given |
| Paying off a mortgage from the portfolio | A large one-time withdrawal | Fee falls permanently on that amount |
| Buying a single-premium income annuity to cover fixed expenses | Assets move to an insurer | Fee falls on the premium, unless the advisor is also paid on the annuity |
| Delaying Social Security and living on the portfolio meanwhile | Portfolio is drawn down for several years | Fee falls during the delay |
| Funding 529 plans for grandchildren | Assets leave the household's accounts | Fee falls on the gifts |
Every row is a recommendation that is right for many households. The point is not that any of them is wrong; it is that each one costs the advisor money. QCD limit: IRS, Notice 2025-67 (2026 amounts relating to retirement plans and IRAs). Bracket: IRS, tax year 2026 inflation adjustments (Rev. Proc. 2025-32).
The size of it
How Much the Pull Amounts To
Take the first row. A household converts $300,000 to Roth in the 24% bracket and pays the $72,000 of tax from its brokerage account. The advisor's fee falls by $720 in the first year. That is small; $720 does not turn an honest advisor dishonest. But it recurs every year for the rest of the relationship, it compounds with the growth the $72,000 would have had, and it is repeated for every conversion, every charitable distribution and every early IRA withdrawal in the plan. Over a twenty-year retirement, a plan that does all of these things well can easily cost a percentage-fee advisor a five-figure sum each year against a plan that does none of them.
The pull also has a direction the client cannot see. The household never learns about the conversion that was not modeled, the charitable distribution that was not suggested, or the mortgage that was left in place because "the portfolio is earning more than the interest rate." Each of those can be a defensible position. Each also happens to keep the assets where the fee is charged.
A conflict of interest is not a prediction that someone will act badly. It is a description of which way the incentives lean when a judgement call is close. In retirement tax planning, most calls are close.
The alternative
What a Flat Fee Changes, and What It Does Not
A flat fee is charged for the planning work, not on the assets. At Flames Financial Planning, Flames Premier is $1,650 a quarter ($6,600 a year) whether the household has $2,000,000 or $5,000,000, and it does not change when money leaves the accounts to pay a conversion's tax, fund a charitable distribution or pay off a house. The recommendation and the fee are disconnected. On a $3,000,000 portfolio the difference from a 1% fee is $23,400 a year before any of the recommendations above; the flat fee vs AUM calculator shows it over time.
Two things a flat fee does not do. It does not make the advice correct: a flat-fee advisor can still model a conversion badly or miss a charitable distribution, and the only protection against that is competence, which has to be judged separately. And it does not remove every incentive; a flat-fee advisor is paid to keep the client, which leans toward advice the client wants to hear. That is a milder pull than one measured in dollars per recommendation, but it is a pull, and a household should know about both.
It is also worth saying plainly that many percentage-fee advisors give exactly the advice in the table above, at their own expense, because it is right. The structure describes the incentive, not the person. The reason to care about it is that the household cannot see which kind of advisor it has until the close calls arrive, and by then the structure has been in place for years.
What to ask
Telling Whether the Fee Is Shaping the Plan
A household can test this without knowing anything about tax. Ask the advisor these questions and look at what the plan actually contains.
- How are you paid, in dollars, this year? Not a percentage: the number. Then ask what the number would be if the plan's recommendations were all carried out.
- Which of your recommendations reduces the assets you manage? A retirement tax plan that contains none is unusual. If the answer is none, ask why the plan has no conversions, no charitable distributions from the IRA, and no early IRA withdrawals.
- Where is the conversion tax paid from, and why? Paying it from the IRA itself keeps the managed balance larger and is usually the worse choice for the client.
- Have you modeled qualified charitable distributions? For a household that gives, up to $111,000 a year in 2026 can leave the IRA with no tax at all from age 70½. A plan for a charitable household that omits them is missing the single most efficient move available.
- Is the mortgage or the annuity analysis in writing, with numbers? Both are legitimate either way; the question is whether the analysis was done or the default was kept.
- Do you also earn anything on the products in the plan? Commissions on annuities or insurance are a second pull, in the opposite direction from the first, and both should be disclosed in the firm's Form ADV.
Check any advisor, including this firm, on the SEC's Investment Adviser Public Disclosure site before signing: registration, fee disclosures, other compensation and disciplinary history are all there. The firm's own disclosures and the Form ADV are where the incentives are written down. Source: SEC Investment Adviser Public Disclosure.
Where this fits
The Decisions the Structure Touches
Every article in this series describes a move that shrinks the portfolio on purpose. How aggressive should Roth conversions be works out how much tax to pay now. Which account to draw from first argues for spending the IRA earlier than the conventional order does. Planning for required distributions puts qualified charitable distributions at the center for a giving household. Managing capital gains says to give the lowest-basis positions away. None of them is a recommendation for any particular household; all of them are the kind of recommendation a fee structure should be indifferent to.
For a household comparing flat-fee firms, the side-by-side with Facet, Range and Domain Money sets out each firm's published pricing and what its tax work includes. The fee question is the same for every one of them: what does the advice do to what the advisor is paid?
Flames FP approach
How Flames FP Handles This
Flames Financial Planning coordinates investments, taxes, retirement income and estate guidance under a flat quarterly membership, with no fee on assets. Planning includes proactive tax guidance and a planning-focused review of a completed personal return. Premier adds ongoing tax projections, Roth-conversion and capital-gain modeling, retirement-income and withdrawal implementation, and eligible tax-return preparation and filing through an independent tax partner.
Flames Planning
$900 per quarter
$3,600 annualized
Flames Premier
$1,650 per quarter
$6,600 annualized
Memberships are billed quarterly in advance with no annual commitment. See what each includes on the pricing page, read how the pieces fit together on the retirement tax planning overview, or, if you are weighing a subscription firm, see the side-by-side with Facet.
FAQ
Common Questions
Why would an AUM advisor discourage a Roth conversion?
Not every one does, and many recommend conversions at their own expense. But when conversion tax is paid from the portfolio, the assets the advisor is paid on shrink, so the fee structure leans against the recommendation whenever the call is close. The same is true of early IRA withdrawals, charitable distributions from the IRA, mortgage payoffs and annuity purchases.
Is a flat fee always cheaper than 1% of assets?
Not for small portfolios. At $6,600 a year, Flames FP's Premier membership costs the same as a 1% fee on $660,000; above that, a percentage fee costs more, and on $3,000,000 it costs $30,000 a year against $6,600. The flat fee vs AUM calculator shows the difference over time for your own figures.
Does a flat fee remove all conflicts of interest?
No. A flat-fee advisor is paid to keep the client, which can lean toward agreeable advice, and any advisor who also earns commissions has a second incentive to disclose. A flat fee removes the specific pull that matters most in retirement tax planning: the one that grows with every dollar that leaves the managed accounts.
Should conversion tax be paid from the IRA or from a brokerage account?
Usually from a brokerage account. Paying from the IRA means less is converted for the same tax bill, and before age 59½ the amount withheld for tax can itself be a penalized distribution. An advisor whose fee depends on the managed balance has a reason to prefer paying from the IRA; a household generally does not.
How do I check how an advisor is paid?
Ask for the dollar figure, then read the firm's Form ADV Part 2 brochure, which every registered adviser must provide and which describes fees, other compensation and conflicts. Both the brochure and any disciplinary history are on the SEC's Investment Adviser Public Disclosure site.
Keep reading
Related Reading
Flames FP vs Facet
Two flat-fee firms compared on published pricing, who you meet with, and what tax work is included.
Flat fee vs 1% AUM
The dollar difference over a retirement, with the calculator.
Retirement tax planning at Flames FP
The seven decisions, and how a flat membership handles them.
Primary sources
- IRS, Notice 2025-67 (2026 amounts relating to retirement plans and IRAs)
- IRS, tax year 2026 inflation adjustments (Rev. Proc. 2025-32)
- IRS, Publication 590-B, Distributions from Individual Retirement Arrangements
- SEC, Investment Adviser Public Disclosure
This article is educational and is not individualized tax, legal or investment advice. Thresholds, rates and premiums are revised every year; the figures here are for tax year 2026 as published by the sources above, and you should confirm the current year’s before acting on any of them. Advisory services are offered through Core Planning, LLC, a Registered Investment Advisor.