Hiring an investment adviser can be a confusing process. Unlike commodities, in which the market price is readily available and there’s little variation from one producer to the next, investment advisory services come with significant variation in price, quality and services provided.
So consumers should be willing to negotiate. Unfortunately, too few do, even though many advisers are willing. In fact, investment advisory firms are required to disclose whether their fees are negotiable in their Form ADV, which is accessible through the Securities and Exchange Commission’s Investment Adviser Public Disclosure website.
Of course, just because fees are negotiable doesn’t mean an adviser has to negotiate, but by broaching the subject, you may be able to negotiate a price or level of service that better suits your needs.
First, recognize that all advisers segment their client base in one form or another. They’ll use objective factors such as total fees paid, amount of time spent servicing a client, referrals provided and potential for future business. But they’ll also use subjective factors such as how responsive a client is, how organized they are, whether they follow an adviser’s advice, and how pleasant they are to work with.
You can use this information to tilt the scales in your favor.
When it comes to negotiating, don’t beat around the bush. Just say, “I would like to talk about my fees. Here are the services I would like, and I think this is a fair price.” This gives the adviser the information he or she needs to determine if he or she can offer you a service that aligns with your expectations.
Pay particular attention to services that you may be receiving or are being offered that you may not actually want. Perhaps your portfolio size defaults you into quarterly review meetings, but you are perfectly happy with annual meetings. This may justify reducing your fee given that many hours of preparation are often required before review meetings.
Another benefit of negotiating is that it may help identify that you’re a poor fit for a particular adviser’s business. If you, say, pay your adviser $5,000 a year, but the adviser’s average client is paying $10,000 a year, then you’re most likely already receiving that adviser’s lowest tier of service, and they will have few options for moving you up or down a tier. However, that same $5,000 fee may make you a top-tier client for another adviser, entitling you to more services at an equal—or maybe even lower—cost.
For this same reason, you should also be cognizant of unwittingly negotiating yourself into a tier of service that is lower than what you are looking for. Particularly if you are in the early stages of saving for retirement and would like help with things other than investment management, paying more than the “industry standard” 1% fee—either through retainers, hourly or higher asset-based fees—may be justified.
Higher fees don’t necessarily get you better service. So you should be willing to negotiate with your adviser to try to get a price or service that better suits your needs.