The market meltdown combined with high-profile hedge fund swindles are giving personal financial advisers a heavy dose of the pain their clients feel in their portfolios.
Cratering asset values directly compress fee income for the large universe of personal wealth managers who charge clients a percentage of the assets they manage. In other cases, clients hit with shrinking net worth are asking advisers to reduce fees. And a tidal wave of distrust spawned by the Madoff and Stanford scandals is making it harder than ever to generate new business.
The alleged Madoff fraud "has painted us with a very bad brush," remarks Beth C. Gamel, executive vice president and co-founder of Pillar Financial Advisors, a wealth management firm in Waltham, Mass. "Nobody trusts anybody. It's difficult to get new clients."
How should a financial adviser respond if a client asks for a break on fees? The answer depends on how the adviser is paid.
An adviser who bills by the hour can work with the client to identify and cut out less critical services to reduce the overall bill, says Lyle K. Benson, president of L.K. Benson Co., a financial planning and accounting firm in Baltimore. Showing flexibility in that way can actually strengthen the client relationship, he says.
Advisers whose fees are structured as a percentage of client assets have less wiggle room. "Nobody's asked me (to negotiate the fee), nor would I in this environment," says Michael E. Goodman, president of Wealthstream Advisors, a New York financial planning firm. "I feel I've taken a pretty big fee cut already" as a result of clients' shrunken portfolio values, he says.