Advisers split on whether cutting fees for clients is good business

Some are flexible and will give clients discounts, while others stand firm and will not bend

Apr 17, 2017 @ 2:53 pm

By Liz Skinner

The increased price transparency of the financial services industry in recent years is leading more clients to ask their financial advisers for a break on fees.

Negotiating is fair game to some financial advisers. They're willing to discuss whether the client may not need all the services the adviser is providing or whether a discount is appropriate as the client's assets grow. But many other advisers draw a line in the sand and refuse to negotiate fees, even suggesting that those who would have the nerve to ask for a discount ought to look for another adviser — or perhaps a broker.

"They ask all the time, and I will not discount," said Brett Anderson, president of St. Croix Advisors in Hudson, Wisc. "Our industry is cheapening the value we bring to our clients by continually undercutting ourselves."

(More: Which channels are yielding the most new client assets for RIAs?)

Like Mr. Anderson, many advisers believe the value they provide to clients deserves appropriate compensation. Some point out that clients communicate with each other and a discount for one client could spark a string of requests from others, too.

They argue it's best to outline what services and underlying assistance an adviser's fee covers, instead of getting into negotiations that could end up permanently irritating one or both sides of the relationship.

"If a person is negotiating fees, then either you are not currently creating enough value for that fee or they are not clearly understanding what they are paying for and why," said Breanna Reish, an adviser with Tricord Advisors in Riverside, Calif.

But some advisers say negotiating fees is appropriate in some circumstances.

For instance, the size of a client's account may dictate a fee reduction.

"The larger and more profitable a client is, the more likely and appropriate it is to negotiate your fee," said Scot Stark, owner of Stark Strategic Capital Management in Freeland, Md.

He's lowered the fee for one large client from 1% to 0.90% and then again to 0.80% of assets over the years because the client asked, and Mr. Stark felt it was appropriate and fair given the continued boost in account assets he was managing.

However, smaller clients are much less profitable and there usually is not the "wiggle room for negotiations," he said.

(More: RIAs make the case for charging on a client's total net worth)

Financial adviser Darin Shebesta with Jackson Roskelley Wealth Advisors Inc. in Cave Creek, Ariz., said he's negotiated some financial planning fees and investment advisory fees with clients, especially if the client who is seeking a reduction has relationships with other valuable clients.

Most of the fee negotiating that he's done lately involves someone who has been referred to him and Mr. Shebesta wants to keep the new client happy so the initial referring client continues to send prospects his way.

Financial advisers are required to disclose whether their fees are negotiable on their Form ADVs that they file with the Securities and Exchange Commission. But even if they include that legal language, that does not mean they have to negotiate.

In fact, Jon Ten Haagen, an adviser in Huntington, N.Y., tells prospects and clients who ask about his fee that he has 40 years of experience with market ups and downs.

"If they still push then I tell them we are not a good fit and perhaps with the fee concerns, perhaps they should go to a wirehouse broker," he said.

Financial adviser Will Thomas of the Liberty Group in Washington, D.C., said the best financial advisers can stand by the value they give to their clients when it comes time to negotiate their fees.

His approach is to give clients more than what they pay for, and "when clients realize that they are receiving this, they very seldom ask to negotiate fees."

Clients want a suite of services for the 1% to 1.5% fee they pay, he said.

"The days are long gone for a client to be charged one fee for one service."

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Mar 13

Conference

WOMEN to WATCH

InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video

Events

The power of data

Your clients have financial news and data at their fingertips, but donít know how to interpret it. Katy Gibson of Envestnet|Yodlee and Blake Kannady of Envestnet discuss the power of leveraging aggregated data.

Recommended Video

Path to growth

Latest news & opinion

Tax reform: 7 essential strategies for financial advisers

While advisers face the difficult task of analyzing the law's impact, they will also have a significant opportunity to prove their value by implementing money-saving strategies for clients as well as their own businesses.

Tax law: Everything advisers need to know about the pass-through provision

The provision is tricky, but could provide advisers and business-owner clients with sizable tax savings.

Bill requiring fiduciary disclosure reintroduced in New Jersey

Measures would obligate financial advisers to tell clients they do not have to act in their best interests.

Merrill Lynch to let advisers text with clients

Texting has been a popular mode of communication for years, but in the past the firm's regulations have prevented advisers from using it.

Bear market for bonds has arrived, Gross says

10-year Treasury rate's move above 2.5% confirms outlook for fixed income, legendary bond manager says.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print