Everyone can and should call their investment manager to negotiate lower brokerage fees. Brokers typically charge clients anywhere from 0.75% to 2.0% of assets under management (AUM) per year. If you have a $500K account, that works out to $3,750 to $10,000 per year. And that’s a huge amount of money when often they aren’t doing anything. Is your broker the type that has you buy something and then just hold it? If so, you are paying each year for that initial decision about where to allocate your investments.
Are the returns generated by your broker outpacing the broader market benchmarks on a risk-adjusted basis? Be sure to understand how your investments are allocated between stocks, bonds and other asset classes. Have your broker explain to you how much risk you are taking on. Ask about Sharpe ratio and standard deviation of your returns. They should be able to explain how risky your portfolio is relative to the S&P 500, for example. If more risky, you need to be outperforming to compensate for that higher degree of uncertainty. They should also be able to explain the volatility of your account. How much can you expect to gain or lose on a particular day within a certain degree of confidence.
At the very least, you should negotiate your fee down to 1% of AUM, preferably down to 0.75%. Particularly now that markets are turbulent and investors have experienced significant losses from late 2021 peaks, brokers will be very keen to maintain you as a client. You should negotiate even below 0.75% if your broker is advising on only a portion of your portfolio.
For example, if your broker is solely focused on advising you on mutual funds, their fee should only apply to that amount. If you have $250K in mutual funds and $250K in stocks that you have selected, pay 0.75% on only the “managed” $250K.”
Most brokers will not volunteer to reduce their fees, but you can certainly broach the issue and come to an agreement that will save you significant money long-term. If not, take your business elsewhere.
Zacks also has some guidance for negotiating lower fees.
