“Most wealth management clients are doing themselves a serious disservice,” says Justin Breen, the driving force behind the exclusive BrEpic Network and co-author of Superior Results: Maximizing the Value of Your High-Performing Family Office Just Like the Super-Rich. “Even when the results they are getting are aligned with their self-interests, they are usually overpaying for these results. Most wealth management clients are not taking steps to ensure they are receiving expectational value while minimizing the cost of the services they receive.”
Without question, most wealth managers strive to deliver substantial value to their clients. However, they are rarely inclined to negotiate their fees. But, that does not mean you cannot negotiate your wealth management fees.
We know, based on extensively researching the private wealth industry coupled with consulting with the extremely wealthy on how to optimize their business relationships, that you can often get a greater value less expensively if you understand the business model of your wealth manager and you smartly negotiate. What we’re advocating is that you want to have a relationship with your wealth manager…
- Where you are getting superior results that align with your self-interests
- Where the quality of your experience is exceptional
- Where the cost dynamic for the expertise you are receiving favors you
What is so very telling is that these three criteria are NOT being met by a large percentage of wealth management clients. Focusing on minimizing the cost of wealth management services, we commonly find that clients are overpaying and—in most cases—can work out a compensation arrangement where…
- They are paying less with no loss—and often an increase—in the value received
- Their wealth managers are making slightly lower but very reasonable profits
Getting more specific…for fee-based investment management services, leveraging a set of private wealth industry compensation models, it is reasonable to lower the fees by as much as 25%. This is a broad range and is dependent on the wealth manager’s stated fee structure, operating model, and capabilities.
In most scenarios, you will only be negotiating the wealth manager’s fee. It is often much more complicated to negotiate the cost of financial products such as mutual funds or money managers in separately managed accounts. The fees for alternative investments such as hedge funds and private equity funds are usually quite difficult to negotiate down. However, sometimes even financial product fees can be negotiated lower.
By lowering fees, you are not only paying less for the same level of investment expertise, there is more money to invest. By paying less year after year and thanks to compounding you can end up with a great deal more money in your pocket.
Another—often complementary approach—to minimizing the cost of your wealth manager is to not question the money management fees but bundle in additional services and products. For example, you ask your wealth manager to include certain administrative services such as bill paying and financial statement preparation instead of negotiating a lower investment management fee. You might prefer to add in various wealth planning services such as estate planning or asset protection planning or business succession planning for not directly addressing the investment management fee. Generally, wealth managers prefer this approach as opposed to lowering their investment management fees.
You can, of course, use both approaches. You can work to lower the investment management fee as well as bundle more services to that fee.
We educate very wealthy families on how to effectively negotiate with professionals such as wealth managers. Sometimes, we are engaged to negotiate with various professionals on behalf of, or in conjunction with these wealthy families. How we negotiate to consistently benefit our wealthy family clients, not magic. Therefore, you can probably get the same results we do. You can very likely minimize the cost of your wealth manager while getting greater value.
Two very important factors to keep in mind when you negotiate with your wealth manager or any high-end professional. One: you want to ensure there is no loss in value when you get an agreement to lower the cost. Two: your wealth manager continues to make a fair but slightly smaller profit working with you.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.
