Competition among banks is giving clients more leverage in negotiations over fees than ever before. According to a recent PricewaterhouseCoopers wealth management survey, 86 percent of the financial institutions (mostly banks) said they would discount their fees, but they only do it about 20 percent of the time. Translation: Unlike Cooper, many people simply are not asking.
 
"We’re absolutely willing to negotiate fees," says Tiffany Barbara, a vice president in private banking at JP Morgan in Los Angeles. "If clients are asking, they probably think they should be getting a fee break anyway."

Banks can find ways to lower their own costs and pass on some of the savings to you. Folding more accounts, such as investments and trusts, into their care helps them spread out their fixed costs. For example, when one of Barbara’s clients eliminated his two other banking relationships in favor of using JP Morgan exclusively—causing his assets with JP Morgan to jump from $50 million to $170 million—he got a 30 percent break on investment management fees. "You get more bargaining power the more assets you invest," Barbara says.

Looking at banking relationships holistically can highlight opportunities for savings. According to the research by Spectrem Group, a Chicago-based consulting firm, $5 million-plus clients have an average of 17 investment accounts. These represent ripe opportunities for consolidation. Brad Turner, a senior managing director at McDonald Financial Group in Cleveland, worked with one client and an estate planner to condense 25 accounts into three. "He’s now saving tens of thousands of dollars in fees," Turner says. He also advises clients to negotiate more sharply by approaching a bank as a multigenerational family, a tactic that lowers fees collectively because there are more assets on hand.

"You get more bargaining power the more assets you invest."

Consolidating accounts builds bargaining clout by increasing the assets under management. In fact, for clients with a net worth of more than $15 million, private bankers usually abandon straightforward fee schedules and negotiate fees as a matter of course—something clients might not realize if they leave negotiations to third parties. In fact, many of these clients hire experts to handle the details. For example, Cooper has her accountants negotiate fees. "They’ll ask hard questions such as, ‘Is there a pre-payment penalty [on loans]?’," she says. "Sometimes there are hidden fees that you don’t understand until they hit you." Others use a lawyer or family CFO, a professional adviser who knows how to price products and services.

There are, of course, limits. Mark Feldman, CEO of Inlign Wealth Management in Phoenix, negotiates fees for his wealthy clients. "It’s important to know where [clients] can and can’t maneuver. You can’t go lower then 20 basis points [a basis point is one-hundredth of a percentage point] for one service," he says, because banks are unable to price services below their cost of capital. According to the PricewaterhouseCoopers survey, the average size of a fee discount ranges from 10 percent to 20 percent.
 
Cooper and others readily admit that fees should never be the predominant consideration in evaluating a private bank. Relationships in which private bankers are responsive and caring are worth keeping. "When you find someone who is watching out for you, it’s very important," she says. Pricewaterhouse Coopers’ survey shows that most organizations score poorly on understanding clients’ needs and objectives.

"If you find a portfolio guy that clicks, he’s worth his weight in gold. If you’re achieving your goals, you can’t de-couple fees from the quality of advice," says John Fletcher, leader of wealth management services for PricewaterhouseCoopers. "When you’re not achieving your goals, maybe fees are part of the problem. Maybe it’s the wrong organization." The key is fair service for the fee charged.

Inlign’s Feldman recommends rethinking fees at yearly banking reviews. For example, clients can ax an unnecessary perq. "You can say, ‘I really don’t want to go to football games; I just want you to manage my money,’" he says. Foregoing the wining and dining can save costs, he says. Clients can usually secure a maximum reduction in fees of about 25 basis points, he adds.

Many clients prepare a 10- to 20-page checklist of their financial needs when assessing new private bankers. The clients use this information to shape the questions they ask banks seeking their business, such as: "What does it cost to have this package of services delivered to us?" according to Ken Evason, CEO of Jacobus Wealth Management, a private wealth manager.

Whatever the approach you take, the first step to negotiating fees is to take a close look at fee structures. Private banking fees can range from 25 basis points for rock-bottom service to 2 percentage points for full service. They’re structured in three ways: percentage of assets under management, transactional fees, and fees for custody—the last is essentially paying your bank for holding your assets, and is usually waived. "Find the right kind of fee structure for how active you are," advises Fletcher. "Is the fee structure representative of the level of sophistication you require?"

A topsy-turvy market with sour results translates into more private clients seeking respite through breaks on investment management fees, which are the easiest to negotiate. "There’s lots of leeway based on investment size and type," says Jeff White, vice president of family office for InvesTrust in Oklahoma City. "Banks are willing to negotiate just to get you in the door."

Cooper, for example, negotiates investment fees whenever she invests money in a partnership. "The fees are all over the board," she says. "Some charge an investment fee and a transactional fee."

Trust fees also call for scrutiny. "Most of these fees are at the discretion of the bank," says White. "There’s not a lot of incremental cost. You’ll find that through an interview process, you’ll get down to a similar floor." That floor usually ranges between 75 basis points and one percentage point.

Conversations about fees require a sharp eye, finesse, and more than one meeting. "It’s a tough discussion to have," says White. "It’s the shot over the bow." Anthony Perea, head of trust and fiduciary in wealth banking at Commercebank in Miami, points out: "A lot of clients are afraid to ask. They think banks will turn them down. But banks are more willing to sit down and negotiate now."

As trying as these conversations can be for clients, we must remember that they are equally so for the bankers. Clients, White says, are saying: "‘I’m giving you a second chance to earn my business.’ It’s a wake up call." Private bankers resist any suggestion that their services are mere commodities, insisting that they offer "high touch" service. But they concede that the value of their services is, in the end, quantifiable.

One timeless negotiating tactic is to note that the bank’s pricing is out of line with those of its competitors. Armed with research, Feldman says he coaxes banks into realizing that competitors will do the same service for half the fee. "They will usually negotiate then," he says.

Clients, however, should be wary of banks that low-ball costs. Many private bankers argue that new entrants are willing to quote what JP Morgan’s Barbara calls "incredibly" low fees. But clients must ferret out the actual level of service being offered for that 50-basis-point fee. "Are they getting estate planning or just fixed income advice?" Barbara asks.

Does a hardball approach to fee negotiations result in poor service? Most say no. Private bankers know their business depends on referrals. "A bank can’t afford to have customers say they’ve gotten poor quality service," InvesTrust’s White notes. Word about poor service spreads quickly. Says Cooper: "People talk over cocktails at dinner."

 Five essential points to consider before you open negotiations:

1.	Will I gain negotiating clout by consolidating my accounts, thereby increasing my assets under management?
2.	Am I willing to change private banks to secure a better deal?
3.	Can I reduce my private banking fees by eliminating perqs and focusing exclusively on advice and transactions?
4.	Do I understand all the fees—including investment exit and loan-prepayment fees—associated with each transaction?
5.	How does my bank calculate my fee and which of its components—percentage of assets under management, fees for transactions, and fees for custody—can be negotiated?

Illustration by Gérard Dubois