HOW TO: Negotiate your way to lower financial advisor fees

HOW TO: Negotiate your way to lower financial advisor fees

How much you pay your online broker is pretty much set in stone, but how much you pay your full-service broker is — and should be — negotiable. Some SigFig users pay 0.3% in advisor fees, whereas others users pay 4% and upward*. Do you know where you are on that scale? Most people don’t. Even those who do don’t always realize they can reduce their fees (sometimes significantly) simply by giving their advisor a call.

Have you had “The Big Talk” yet? 

The fact is, a lot of people don’t realize they can negotiate what they pay their full-service advisor. As a result, clients at large brokerage houses rarely have the Big Talk with their advisor. The Big Talk isn’t meant to challenge or threaten your advisor; the goal is simply to understand what your advisor is charging you, and whether or not your advisor can shrink that number.

3 easy steps to lower your advisor’s fees:

  • Ask how much you’re being charged: More than likely, it will be next to impossible to see what you’re paying in fees by looking at your brokerage statement. Call your broker and ask how much he/she is charging you.
  • Negotiate: Everything (well, almost everything) is negotiable at a full-service broker…so here’s what to do:

1.   Ask how your broker determined your fee structure.

2.   Focus on commission or wrap fees–they make up the bulk of all your fees and have the largest effect on your returns.

3.   Review your fee structure and ask him/her if there’s any room for reduction. If you think you’re paying too much in fees, tell him/her you’d like it reduced or you’ll move to a more cost-sensitive competitor.  The broker has a lot of flexibility to reduce his/her commission and will have to decide how badly he’d like to keep you as a client.

  • Make a move: Cutting the cord from a full-service broker isn’t for everyone but if you’re self-sufficient as an investor, online brokerages are significantly cheaper in their fee structures.   Check out Barron’s yearly review of the online brokers to find an online broker that fits your needs and budget. SigFig data has shown that by finding a lower cost broker, SigFig users can save a total of nearly $22 million.  That’s an average of $600 per user every year.

$22 million dollars in savings. 

To put that number into context, let’s see what you could buy with that much money:

  • 44,000 iPads: The new iPad 2 is going for $499. Let’s hope 44,000 iPad’s gets you a bulk discount.

Even though you won’t personally save $22 million, $600 per year isn’t anything to scoff at either. $600, just by making a simple switch.

SigFig will make negotiating A LOT easier.

Every percentage point you pay out means your investments must generate that much more return in order to cover the costs.  That’s why we’re busy building never before seen technology that makes it dead-simple to see how much your advisor’s charging you, how well he/she is performing, and how both metrics compare to his/her peers. In essence, we’re going to give you an easy-to-read advisor report card that tells you whether or not the juice is worth the squeeze (in terms of your advisor’s fees vs performance).

In the meantime, with just a little investigative research and some elbow grease, you can work with your advisor to reduce pesky fees and set yourself up for future success.

*brokerage fee data compiled by examining over 36,000 anonymous SigFig users – across multiple brokerage and 16 different types of fees -over a one  year period.
Data is for information purposes only. This article does not constitute a solicitation  or offer by SigFig.
Zack Miller is an editorial contributor at SigFig, where he helps users take a fresh approach to learning about their investments. Prior to joining SigFig, Zack was a hedge fund analyst who oversaw $1 billion in assets and the author of Tradestream your Way to Profits.