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."
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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.
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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."
