In contrast, an adviser whose fee is based on a percentage of assets under management can justify the automatic increase in the client's fees when the client's portfolio appreciates. If the firm selects this fee alternative, the authors recommend setting a fee range for each engagement rather than an absolute amount. If the client expects a given fixed fee, it is difficult to increase the fee if unexpected complications arise during the engagement. This is one reason this method is not prevalent in the investment advisory business. A maximum might also be set.
Flexibility also exists in setting the hourly rate.
Hourly billing may discourage the client from contacting the adviser with questions or when circumstances change. With hourly billing, many clients believe their fees increase with every phone call. Clients may dispute the amount of time being charged. Hourly billing puts a recordkeeping burden on advisers and creates a problem in attempting to allocate and bill for administrative and overhead time. It is common for the adviser who charges this fee to refer the client to other advisers for implementation services.