When choosing a financial advisor, cost is an important consideration. After all, you want to make sure that you’re getting value in exchange for the fees you’re paying. If you’d like to keep costs as low as possible, you may be wondering whether financial advisor fees are negotiable. The short answer is that they could be, depending on how an advisory firm structures its fees. There’s no guarantee that negotiating will work, though there are other things you might be able to do to save money when hiring a financial advisor.
How Much Does a Financial Advisor Cost?
Every advisor is different with regard to how they set their fees. Advisors may charge a combination of the following:
- Hourly fees
- Fixed fees
- Performance-based fees
- Percentage of assets under management (AUM)
When estimating hourly or fixed fees for financial advisors, you’re typically looking at a range. For example, an advisor who uses a fixed fee structure might charge anywhere from $7,500 to $55,000 for their services.
How Much Financial Advisors Typically Charge
Advisors who base their fees on a percentage of your AUM typically charge approximately 1%. These advisors may use a sliding scale that adjusts based on the assets you bring to the table. For example, you might pay one fee for the first $100,000 in AUM, a reduced fee once you reach $500,000 in assets and an even lower fee on all assets above $1 million.
A fee of 1.5% can be common for firms with excellent track records who have consistently had high returns, especially if they are looking to have fewer clients. This is considered to be, however, on the high end of what financial advisors as a whole will charge to their clients when receiving a percentage fee of the total AUM.
Are Financial Advisor Fees Negotiable?
Financial advisor fees may be negotiable. Whether you’re able to get fees reduced can depend on which advisor or firm you’re working with. If an advisor is willing to negotiate fees, they must specify that in their Form ADV. This documentation allows investment advisors to register with the Securities and Exchange Commission (SEC) as well as state securities authorities.
Do financial advisors have to negotiate fees? No, although it’s not an entirely uncommon practice. For instance, some advisors may be willing to work with clients to reduce fees in order to retain them. If you’ve been with your advisor for some time, they may be open to extending a fee discount to keep you from going elsewhere.
How to Negotiate Financial Advisor Fees
Negotiating financial advisor fees is like negotiating anything else. You need to know what kind of leverage you might have for getting a better deal on fees, and a target number to aim for.
Here are a few tips for negotiating fees with your financial advisor.
Check their Form ADV. Before broaching the subject of reducing fees, it’s a good idea to check your advisor’s Form ADV. You can find these documents on the SEC’s Investment Adviser Public Disclosure website. When reviewing the form, you’ll want to look for the fee schedule breakdown and whether those fees are negotiable.
Ask for a breakdown of the numbers. Once you know what you’re paying for, you can ask your advisor to explain in detail what each fee covers. A good advisor should be willing to offer complete transparency with regard to how they’re compensated and what you’re getting in return for your money.
Make your case. Even if your advisor is willing to negotiate fees, you’ll need to give them a solid reason to agree to a fee cut. When negotiating for a fee reduction, know what’s working in your favor. For example, if you’ve been a client for 15 years or you’ve brought $5 million in assets to their firm, that could help to strengthen your argument for reduced fees.
Pick a number. Simply stating that you’d like to pay less in fees might not move your advisor to offer you a deal. Giving them a firm number – and making an offer first – can put you in a better position to get the kind of fee reduction you’re after.
For example, say that in the time you’ve been their client, you’ve increased your AUM from $100,000 to $1 million. Meanwhile, they’ve charged you the same 1% fee the entire time. You could set a target of reducing the fee to 0.90%, but make an initial offer of 0.85%. That way, you have some wiggle room to allow them to negotiate you down a little.
Be prepared for a counteroffer. Reducing fees can cost advisors money in the short term, even if it means maintaining an existing client relationship for the long term. So, you may run into some pushback after making your offer. If your advisor counteroffers, that’s a sign that they’re interested in keeping your business, but you might need to do a little more negotiating to arrive at a number you’re both comfortable with.
Walk away if necessary. If your advisor is unwilling to negotiate fees with you, then you may need to contemplate moving on to another firm. Whether that’s a move worth making can depend on how satisfied you are with the services you’re currently receiving and how much money you might be able to save by going elsewhere.
Tips for Choosing a Financial Advisor
If your negotiations have failed and you’re in the market for a new advisor who’s more budget-friendly, it’s important to do your research. Asking friends and family for referrals can be a good place to start. You can also check out online reviews and consumer ratings to see which advisors in your area have the best reputation.
Once you’ve put together a shortlist of advisors to interview, you can ask them the following questions:
- How are you paid?
- Are your fees negotiable? If so, what are you willing to negotiate?
- Are you a fiduciary?
- What type of clients do you typically work with?
- Is there a particular net worth that you target?
- What’s your investment strategy?
- How often do you communicate with clients?
- What’s your preferred method of communication?
- Do you offer any “extras” that other advisors don’t?
Asking these kinds of questions can help you to find an advisor who’s a good fit financially. You can also take a deeper dive into the advisor’s background using FINRA’s Broker Check tool.
Are Robo-Advisors Better for Saving Money?
You could skip the human advisor and work with a robo-advisor platform, instead. Robo-advisors manage your portfolio using proprietary algorithms. It’s essentially set-it-and-forget-it investing since some robo-advisors can handle things like rebalancing and tax-loss harvesting for you.
In terms of fees, you might pay much less to work with a robo-advisor. Typical fees can range from 0.25% to 0.50% of AUM, according to a 2021 study from Advisory HQ, so it’s often cheaper than hiring a human financial advisor. There are, however, a few weaknesses with the robo-advisor model.
For one thing, they don’t offer the full range of services you might get with a human advisor. Rebalancing and tax-loss harvesting, for example, are not available with every robo-advisor.
More importantly, robo-advisors can’t offer the same level of insight that a human advisor can. That’s important when you’re going through major life changes that affect you financially or you’re feeling panicked about what market volatility means for your portfolio. Having that human touch can be well worth the additional cost if you’re not comfortable going it alone.
The Bottom Line
Negotiating financial advisor fees is one way to save money when getting professional advice. If you have yet to work with a financial advisor, it’s helpful to consider how you might benefit from having one. Even if you’re still in the early stages of saving and investing, an advisor can help you to create a financial plan for reaching your big (or small) goals.
Financial Planning Tips
- A financial advisor can help you manage your assets, plan for the future and make important decisions in the present. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re interested in working with a robo-advisor, take time to compare different platforms. Specifically, consider what type of portfolios they offer, how much they charge in fees, the minimum investment requirements and what added benefits or features are available.
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