Is Your Bond Portfolio Losing 25% of Its Income to "The AUM Tax"?

Jeremy Dunning
5 days ago
3 min read

For years, the financial industry has moved toward a "one-size-fits-all" fee model: the 1% Assets Under Management (AUM) fee.

On the surface, it sounds fair. You pay 1% for professional advice and management. But for fixed-income investors, this model contains a hidden reality: It is often the most expensive way to own a bond.

If you are a conservative investor or a retiree living off bond interest, it’s time to look at the "Yield Leak" occurring in your portfolio.

The Math: 1% Isn’t Always 1%

When an advisor charges a 1% fee on an equity portfolio that grows by 10%, you are effectively sharing 10% of your growth with the advisor.

However, bonds aren't equities. In today’s environment, a high-quality bond portfolio might yield 4%. If your advisor takes 1% of the total assets every year, they aren't just taking 1% of your wealth—they are taking 25% of your annual income.

Portfolio Strategy	Annual Gross Yield	Advisor Fee	Your Net Income
Traditional AUM (1%)	4.00%	(1.00%)	3.00%
Transactional Model	4.00%	$0.00	4.00%

*In a transactional model, you pay for the execution upfront, meaning your ongoing interest checks stay entirely in your pocket.

The "Buy and Hold" Advantage

The industry’s push toward recurring fees assumes that your portfolio needs constant "management" and trading. But for many bond investors, the goal is simple: Buy quality, collect income, and hold to maturity.

Imagine a $1,000,000 bond portfolio held for 10 years:

The AUM Fee Model: You pay roughly $10,000 every single year. Over a decade, that’s $100,000 in fees.
The Transactional Model: You pay a one-time "concession" or markup when the bonds are purchased (typically around 1%-2%). Your total cost for those 10 years is $20,000.

The difference? $80,000 in your pocket, not the advisor's.

Why the "Old Way" of Buying Bonds is Making a Comeback

Transactional pricing (paying a commission/markup at the time of purchase) has become a "contrarian" move in a fee-obsessed world. But for the serious bond investor, it offers three distinct advantages:

Zero Annual Drag: Your yield-to-maturity is locked in from day one. There is no annual fee to erode your compound interest.
Institutional Access: As a specialized bond manager, I access institutional pricing that isn't available to retail investors. Even with a markup, the "net yield" to the client is often higher than they could achieve elsewhere.
Conflict-Free Holding: I am not incentivized to "manage" for the sake of management. If the best move for your portfolio is to sit tight and collect checks, that’s exactly what we do.

Is Your Portfolio Leaking Yield?

Not every investor is a fit for this model. If you trade your bonds every six months, a fee-based account might actually save you money. But if you are a long-term, income-focused investor, you are likely overpaying for your fixed-income management.

The Question: Are you paying for advice, or are you paying a permanent tax on your principal?

Get a Complimentary "Bond Fee Audit" Think you might be overpaying? I help investors and their CPAs analyze the "All-In" cost of their current bond holdings. [Click here to schedule a 15-minute review.]

Disclaimer: Investment involves risk. Transactional pricing involves a one-time markup/concession at purchase. This model is most cost-effective for long-term "buy and hold" investors. High turnover in transactional accounts can lead to higher costs than fee-based models.