Can You Really Negotiate Financial Advisor Fees?
Short answer – yes!
Paying the full stated fees for wealth management is like paying MSRP for a car. I'm sure some very nice people pay the full sticker price for a new car. Maybe the car salesman's mother. Everyone else negotiates a lower price.
This is going to sound strange, but I think financial advisors for high-net-worth clients cut their own fees too easily. Early in my career at a wealth management firm, I was brought into a conversation with a prospective client, a wealthy woman in her 60s, to explain our approach to investing. This was the third meeting between the financial advisor and this prospective client and the meeting went great. Her tone and body language indicated the prospective client wanted to hire us. The next step was a final proposal from us, including the fee rate the prospective client would pay if they signed with us. Now the financial advisor and I were working on the proposal – the largest component was the fee rate. Our firm had a stated fee rate that we included in our public ADV filings. The financial advisor wanted to offer the prospective client a 20% reduction below our stated fee rate. I pushed back – the meeting had gone great and the prospect wanted to work with us. Moreover, we were a high quality offering – we shouldn't be underpricing our services. The prospect hadn't mentioned price at all or indicated she was interviewing other advisors. Still, the financial advisor was reluctant to risk scaring off the prospective clients and offering a substantial discount to state fees was typical. I was persuasive enough that we went out with the full fee proposal, but if the prospective client so much as sneezed when reading it, we'd offer her lower fees. Fortunately, I was right, she didn't sneeze, and she happily agreed to pay our full stated fee rate.
I mention that story to illustrate how eager financial advisors are to offer fee discounts. It often requires courage for advisors to even ask new clients to pay their stated fee rate before offering a discount. You can use this to your advantage when negotiating for lower fees.
Key Takeaway
Yes! Advisors are often eager to offer discounts to attract and retain clients. Use this to your advantage when negotiating.
When to Negotiate for Lower Fees
The most natural time to negotiate is before signing up with a new financial advisor. You hold nearly all the cards, especially if the advisor believes you may hire someone else.
That said, you can ask for a fee reduction later on. An ideal time would be if you have been "low maintenance" for the past year or two and there's nothing on the horizon that would indicate a lot of work or a reduction in your investable assets (e.g., upcoming trust work, a divorce, withdrawing a bunch of money to invest in a business or real estate).
Best Times to Negotiate
Ideal: Before signing with a new advisor – you have maximum leverage
Also Good: After being a low-maintenance client for 1-2 years with no complex work ahead
Avoid: During major life events or when requesting complex services
What Makes You a "Better Client" (And Why It Matters)
If you are wondering "can I negotiate lower fees from my financial advisor?" I first suggest thinking about if you are a "good client" from the financial advisor's perspective. The ideal client is 1) less work, 2) pays a lot of fees, 3) refers new clients, and 4) isn't going anywhere. Let me explain each of those.
1. Less Work Means Better Negotiating Power
Less work means less complexity and less needy. For instance, the most difficult client would be one with lots of accounts including smaller accounts for children and charities. This difficult client would make lots of outside investments that are not approved by the financial advisor. Worst of all, the difficult client calls and emails the advisor almost every day with some question or concern. So less work is an easy client – less complexity and less fuss.
2. Higher Assets = More Fees
Fees are typically a percentage of assets, so clients with more assets pay more fees. Advisors like clients who pay more fees. They'd rather sign up a new client with $200 million than $2 million. They also like clients with the potential to pay a lot of fees in the future. A senior engineer at a rapidly growing startup is a more exciting client than a 65 year old approaching retirement, even if they both have $5 million to invest today.
3. Referral Potential
The vast majority of new clients for financial advisors are referred by current clients. A good referral client is a gold mine. Examples include a doctor at a private practice who referred her colleagues or a senior manager at a startup that's about to IPO. Clients who work with a bunch of other people that are in the process of building wealth are phenomenal sources of future clients.
4. Long-Term Commitment
The most work an advisor ever does for a client is the initial onboarding. It's a lot of work to collect all of a client's information, set up new accounts, and trade his portfolio to buy into the advisor's model portfolio. Ideally for an advisor, all that upfront work means many years of future fees for that client. If the client leaves within 2 years, then it's likely the client cost the advisor more in labor than he ever paid in fees. Long-term clients are ideal.
Anyone can negotiate lower fees, but it's easier for "better" clients. If you are one, you should mention it when asking for a lower fee.
Self-Assessment: Are You a Strong Negotiation Candidate?
You have strong negotiating power if you:
✓ Have $5 million+ in investable assets (or strong future potential)
✓ Keep your account structure simple and consolidated
✓ Don't require frequent advisor attention
✓ Can refer other high-net-worth clients
✓ Plan to be a long-term client (5+ years)
Realistic Fee Discounts: What to Expect
10 to 20% off the stated fee rate is typical. I've seen clients at 50% of their stated fee rate. The best way to determine what is achievable is to compare fee rates to similar firms using our list of firms.
I've heard many advisors gripe about "unprofitable" clients that don't pay enough in fees, but I've never seen an advisor fire or refuse to work with a client with $5 million or more of assets because the client wasn't paying enough fees. Some clients pay so little in fees that advisors aren't upset if they lose the business, but in the great majority of cases, advisors would rather have a low fee client than not have the client at all.
The advisor might push back, but if you are armed with a lower fee rate from a competitor, that's powerful leverage. To understand typical fee rates, see our comprehensive analysis of what wealth management costs. Understanding the different types of financial advisors and their typical fee structures can also help your negotiations. Learn more in our guide comparing wealth managers vs financial advisors.