At the same time, those investors who negotiated their fees
were
extremely confident in their knowledge of the business; a confidence that
translated into a willingness and ability to engage in fee negotiations
(Exhibit
8). In effect, they were informed consumers.
It stands to reason that a by-product of broader exposure to
money managers is greater knowledge, and that is the case. About 70 percent
of the investors who negotiated their fees cited the asset managers themselves
as the most important educational resource (Exhibit 9). Fortunately, there are
additional valuable sources of information that investors can draw on in an
effort to learn more about the business. Nearly 60 percent of investors rely on
the media to inform them, 30 percent turn to other advisors such as accountants
and attorneys, and 14 percent receive their information from peers and other
investors. Earning Your Share
The trend toward more frequent and more flexible fee
negotiations should be good news for investors in all financial brackets—not
just the highest ones. However, research shows that fee reductions don’t simply
happen without the client taking the initiative or creating the right
conditions. Effective negotiators credit the following factors with their
success: • A competitive mind-set, a willingness to negotiate and the
desire to shape a favorable outcome for themselves.
• A detailed understanding of the business model of the
individual or organization with whom they are negotiating.
• And a belief that everything, no matter what it is, can be
negotiated.
The Methodology
Over the course of 12 years, we’ve surveyed more than 1,500 different investors. Each investor has a
minimum of $1 million and each uses a fee-based asset manager. We do this to
understand the depth of their relationships, the extent to which they negotiate
their fees, and the factors that contribute to their success in doing so. We
conducted the surveys every four years to develop a longitudinal database,
allowing us to track progression over time. To better understand the link
between fee negotiation and assets under management, we segmented each survey
sample into one of three categories based on the total assets entrusted to an
investment manager: $1 million to $5 million; $5 million to $10 million; and
more than $10 million (Exhibit 1). Note that these affluent investors may have
had additional investable assets in other vehicles such as hedge funds, private
equity, securities, pooled funds and retirement accounts, as well as assets with
commission-based providers.
Illustration by Gary Hovland.
Russ Alan Prince is president of Prince & Associates, a market
research and consulting firm for the affluent, and the author of more than 35
books on related topics. Hannah Shaw Grove, an author and columnist, is an
expert on the behavior, concerns and finances of affluent consumers.
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