Are Financial Advisor Fees Negotiable?

Are you looking to hire a financial advisor? Because of their expertise and experience, their services are invaluable. But they can also be costly. However, there are ways you can pay less, such as with negotiation.

Most financial advisors charge using a variety of fee structures, such as hourly, per project, or based on the assets they manage. While most will feel comfortable charging you a certain rate, you may be able to work the cost down by specifying what you need. In this article, we’ll help you understand how advisors tend to charge you and why negotiation can help you save money.

Understanding Financial Advisor Fees

As it relates to cost, there are two types of financial advisors. Some can be fee-only, which means they only charge you for the services they provide. Others are fee-based, which means they charge a mix of fees and a commission on products they recommend. Because fee-based advisors charge a commission, there may be a conflict of interest; however, they still adhere to regulations by FINRA, such as the suitability standard.

Whether your advisor is fee-only or fee-based, they will likely have many ways they may charge you. Each differs a bit, but ultimately, all relate to the services they’re providing you. Here are the most common:

• Assets under management (AUM) fee. Often, advisors will charge you a percentage of the assets they manage. Typically, this number is about 0.5-2%. As your assets go up, the percentage should decrease.
• Hourly fee. This is where you pay an expert for their time. On average, advisors charge about $200 to $400 per hour, depending on their credentials. Typically, an hourly rate is for simpler services and consultations.
• Flat fee. Flat- or fixed-fee advisors charge for specific services they provide. This includes tasks like retirement planning, risk management, portfolio management, and estate planning. For instance, you might pay a flat rate for them to help you set up a comprehensive retirement plan.
• Annual retainer. If you know you’re going to need your advisor for the next year (or longer), it may be wise to pay them a retainer fee. This means you pay ahead for their services. However, if they end up doing less than what you paid for, you should expect reimbursement for the difference.
• Commission. Some advisors make a commission on products you buy. Occasionally, they may advertise themselves as being “free.” Keep in mind that they may not always be making recommendations that are in your best interest, so be wary of the risks here.

When an Advisor Might Negotiate

Financial advisors may be willing to negotiate some, but not all, of the costs they charge. Of course, they will want to be paid according to the value they’re providing you. However, there may be some way they can discount rates, such as for specific projects or their time.

Some of the fees in the last section are easier to negotiate than others. For example, you may be able to convince an expert that a project (flat-rate) you need them to do will be less work or cost less money. Or perhaps you may be able to work an annual retainer fee down from its original rate.

An advisor may be more willing to lower the price of a service if you’re willing to get less in return. For example, if you’re hiring them to help with retirement planning, but you’re willing to open accounts yourself, you may not need to pay as much. Ultimately, you’ll need to sit down with them and convince them why they should charge less.

Brian Kuhn, CFP, and Senior Vice President at Wealth Enhancement Group, weighed in on why an advisor may be willing to lower their costs, “If an advisor does negotiate their fee with prospective clients, it could mean they are new to the business and seeking to take on willing clients.” Professionals may also add a discount if they’re competing “for the client’s business.” And finally, with a “tiered system,” the total advisor fee may be lower with the “more money you place under management.”

You should also be aware of extra fees you may end up paying. For example, transaction and ongoing costs (such as with a mutual fund) are common if an advisor is helping you manage your portfolio. Often, when a security is bought, the accompanying fee (if any) is passed on to you. Then, any recurring payments are also your responsibility. Such fees are, naturally, non-negotiable as your advisor isn’t responsible for them.

Fee Negotiation Tactics

Negotiating price with your financial advisor isn’t always easy. Before asking them to charge less, you’ll need to know why you want them to do so. However, be warned that while some may anticipate that clients will make such an attempt, others won’t be receptive at all.

It’s always a good idea to have a plan going in. Make sure you know what fees you want your advisor to lower (e.g., flat rate, hourly, etc.), as well as why you want them to do so. For example, maybe you need help building an investment plan but are willing to monitor and rebalance progress yourself. This could be a legitimate reason for them to lower the price because you’re taking on some of the work, they’d normally offer clients.

Knowledge is power when you negotiate. For this reason, it’s important to ask as many questions as you can about your advisor’s pricing and the services they’re providing. Here are some you should consider bringing up:

• How do you pay yourself (flat fees, AUM, commission, etc.)?
• Are they any fees I can get rid of or services I can reject?
• Will I get any say in how I pay you?
• If you use an AUM structure, does the total advisory fee go down if I add more assets for you to manage?
• Are you open to negotiating flat fee rates?

Another factor to consider is that the first number thrown out during negotiation heavily influences the final result. Experts typically refer to this as the anchoring bias. Be sure to have a number in mind when you’re discussing fees and don’t be afraid to use it to set the tone. This is also useful to see if both you and the advisor are in the same stratosphere number-wise.

Other Ways to Save

While negotiation can be a powerful tactic to lower your advisor costs, “it’s uncommon” in the industry, according to Kuhn. So, you may need to consider alternative ways to lower your costs. Luckily, there are a couple of other strategies you can use to do so.

First, you should aim to “seek out flat fee advisors,” who charge to “cover specific services in a period.” In this case, you avoid paying extra for services you don’t need or want. You may also find this beneficial if you’re just starting to work with a professional because it allows you to see if you still want their services after a short-term project.

It’s also smart to shop around and talk to several advisors before deciding on who to work with. This way, you can find the person who offers the most value for the lowest possible fee. However, Kuhn warns that “being comfortable with the individual you work with and how they communicate should not be disregarded in search of the lowest costing service.”

With so many advisor options, it can be hard to narrow down your search. We recommend you use a free matching tool, such as this one, to help. After filling out a brief quiz about your current financial situation and goals, it’ll connect you with up to three vetted experts near you.

Frequently Asked Questions

Should you always try and negotiate fees with an advisor?

While some experts may be willing to talk about lowering their fees, many won’t. According to Kuhn, “It may be more work than it’s worth to seek out an advisor who will” negotiate with you. For this reason, you should look for a professional that can provide value first and keep their willingness to bargain secondary.

What is the most expensive financial services advisors offer?

Managing your assets for you is likely to cost you the most money. Plus, when you have less for them to handle, you may end up with a hefty percentage, sometimes as high as 2%.

What should I avoid in a financial advisor?

It’s important to find someone who both puts your needs first and can communicate effectively. If an advisor isn’t being transparent about how they make money or, frankly, isn’t pleasant to work with, you should avoid them. After all, it’s most important that you have a rapport and honest relationship with the expert you’re working alongside.

What types of fees are negotiable?

Per Kuhn, “fee-based or flat-fee financial advice” may be negotiable. This is especially true if you can avoid paying extra for services you don’t need. However, other fees, such as from “brokerage accounts, where the advisor is carrying out a trade of a load mutual fund or selling an annuity” may not be negotiable. This is because “those products’ commissions” are set up beforehand by their respective “vendors.”

It’s also important to keep in mind that advisors must adhere to the fee structures listed in their Form ADV. Firms typically say whether or not their fees are negotiable in this section as well. To access this form, you can use the SEC’s Investment Adviser Public Disclosure (IAPD).