In the wake of the financial crisis, investors descended on their financial advisers clamoring for lower fees. The good news, says investor protection group Invest Right, is that many fees can be negotiated. Just how far you get in the negotiation discussions depends on a mix of your relative standing as a client and the questions you ask. In the age of financial uncertainty, investment advisers who are willing to haggle a little to keep you as a customer stand to prevail over those who are inflexible about fees.
Types of Fees
There are numerous ways that financial advisers charge fees for their services. Investor empowerment resource Investor Guide discusses fee-only arrangements, where your adviser receives a percentage of your assets -- 0.75 percent to 1.25 percent -- as an annual fee. Other advisers charge commissions based on the transactions you make. These could be "sales charges" of mutual funds, surrender fees or 12b-1 fees -- they all are commissions in different forms. Another method of adviser compensation is the flat fee or hourly fee, which presumably limits costs to a finite amount.
When it comes to fee negotiations, the size of your account matters a great deal. If you are coming to the discussion with assets in your account several million dollars larger than other customers, you clearly are going to have more clout. On the flip side, if your account size is on the lower end, you are going to have to accept that your request may not be successful.
Dollars Vs. Basis Points
Consultant to wealth managers James Grubman emphasizes the importance of specificity and clarity in fee discussion. When negotiating, make sure you have the adviser's fee schedule and method of calculation. Obtain a good understanding of which services are included or not, and ask questions about any fine print. If you get confused by basis points, get him to break it down for you in dollars. After you have the dollar figures in front of you, have your adviser correlate that cost to the services rendered. If he mentions performance issues such as adding value, ask for records to back up his assertion.
Candor Financial Services mentions that one way you can strengthen your position when negotiating fees is by bringing up quotes from comparable advisers and/or services provided. You might ask: "Adviser X charges $20,000 for similar services, so what am I getting for the additional $10,000 that you charge?" Get the adviser to reconcile this discrepancy. At the same time, you should be respectful rather than confrontational so that negotiations don't break down.
Asking for Perks
If you are not able to decrease the fees, you may nonetheless be able to derive other benefits. To stay competitive, financial advisers offer clients a variety of "extras" -- so ask about them. "Wall Street Journal Online" says financial planners are willing to go the extra mile for clients, whether that is to refer contractors and real estate agents, help with Social Security and Medicare planning or assist with your children's college financial aid applications.
Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.