Many proponents of fee _base_d accounts argue that if an advisor is being compensated _base_d on a percentage of assets under management, it aligns an investor’s interests with those of an advisor. Both parties have a vested interest to see the account grow. As the account grows, the investor is happy because his balance is going up, and the advisor is happy, because he gets compensated more. This is in contrast to the traditional commission model, where advisors would get compensated whether an investor bought or sold an investment. So the motivation would be to increase the number of transactions, not necessarily do what was in the best interest of the client.

I certainly agree that if an advisor is charging you an asset _base_d fee, he should earn it. Some of the ways he can earn his money is by conducting periodic reviews of your portfolio and/or an annual review to determine whether or not your circumstances and goals have changed. Asset allocation can play a huge role in performance.

There are fee-only planners that charge _base_d on time. The risk here is that an investor might be hesitant to ask questions, knowing that he’ll get charged every time. And depending on the size of the account, it may not be cheaper.

When judging your advisor’s performance against an index, it’s important to make a fair comparison. In other words, if you’re nearing retirement and have a conservative allocation, it’s not appropriate to compare your performance to that of an emerging markets portfolio or a small cap portfolio. Speaking from the perspective of mutual funds, there are a ton that don’t beat their respective benchmarks. Some mutual funds are even branded as closet index funds, since they perform like an index, but charge higher fees.