Discover your dream Career
For Recruiters

Advisers Grapple With Distrust, Fee Pressures

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.

author-card-avatar
AUTHORJon Jacobs Insider Comment
  • Bi
    BillPearl
    2 March 2009

    Jon:
    Fair points. But there is market timing and then there is market timing. Bear Stearns was without question a signal that all was not well with the financials. And has i remember the S&P"s had a 15 point rally off the bottom the Sunday after Lehman Brothers. Believe me, nobody knows better than I do that the next hour, the day, the week. It's almost random in a certain sort of way. But what I am saying is that this guy is supposed to protect his clients. You can't say you've done that if you followed some sort of model all the way into the toilet. Additionally, I don't care who you voted for but it was obvious that Obama is a seriously left wing guy. He has an agenda and it is not business and market friendly and in fact We've had a fairly severe drop since they called PA for Obama on election night. Now we're in a situation where the stock market is dropping, bonds are dropping. And Gold, while off the highs seems to be in a definite up trend. Again. I don't know this guy, I have no ax to grind. But he seems to have not anticipated any of this. Seems to feel that his fees are somehow due him. And all in all seems to be a guy who is not doing right by his clients.

  • Jo
    Jon Jacobs
    1 March 2009

    Bill,
    As stated in the article, if an adviser's total client assets under management shrank 33% and the adviser's fee was structured solely as a percent of assets, then don't you think the adviser will "suffer," with his fees falling 33%? As for the Bear Stearns signal, it's hardly as clear-cut as you state. I bought at the opening on Bear Stearns day and sold at a nice profit later. (Still, timing is a crapshoot: I tried the same thing soon after Lehman and got my head handed to me.) Moreover, losing 33% vs. a 40% stock market drop might be good enough, depending on what the client's stated investment objectives were ex ante. For instance, if an account was for a young child with no income needs, and the client and adviser had agreed on an ultra-aggressive allocation, then there'd be no cause to complain. Yes that's an extreme (few clients would hire an adviser for ONLY a young child's funds), but it shows how clients and their particular needs have a voice - the major voice, really - in the setting of their account's investment objectives and in turn, asset allocations. Reflexively blaming the adviser as you seem to do is a cop-out, in other words. --Jon Jacobs, eFC News

  • Bi
    BillPearl
    1 March 2009

    Jon:
    Let me throw this one at you. And I say this has someone who spent 20 yrs on the floor of the CBT. I'm not saying Goodman should have been the one guy that got everyone out at the top. I doubt that he is nostra damus. What I am saying is that any professional should have seen that Bear Stearns was a shot across the bow. If he can't manuever a little then his clients should be in index funds and do it by them selves . They would save fees and transaction costs. Also, and I don't know the guy, and have no ax to grind here but it seems to me that an honest guy would say to his clients just because an index went down 40% and we ONLY lost 33%. Well , that's not good enough and I'm going to suffer also. That does NOT seem to be his attitude. Am I wrong?

  • Jo
    Jon Jacobs
    26 February 2009

    I suppose I should contact Michael Goodman and invite him to defend himself. But I'm lazy, so I'll do so in his stead. Neither of you have a clue how his clients' portfolios performed relative to objectives. For all you know, his advice might have put them well above their peers. (He did mention no client asked for a fee concession.) While you both have a point that an adviser's interests should be aligned with the client's, BillPearl seems to be advocating market timing. That would be at odds with professional norms, of course. What's more - maybe I should have stated this in the story - each adviser did say how important it was to listen to clients, empathize and adapt to requests for portfolio changes. For instance, Gamel said most clients now want somewhat larger cash and bond allocations, and "modest trimming" of equities. She also said clients often voiced anger about losses from Sept. through Nov. But once the severe global recession and bank contagion became common knowledge, clients stopped blaming the losses on their advisers. And one adviser - it might actually have been Goodman - said his clients even voiced sympathy for him, inquiring if he was alright.

  • JP
    JPGarcy
    26 February 2009

    I agree with Mr Pearl. The financial adviser that provides not only sound financial counseling, but also the requisite client relation services manages the risk to his/her business. Without a wise client relations strategy, the long-term viability of an enterprise is greatly at risk. Mr. Goodman may also benefit by remembering that client relations is just that--a relationship. Relationship are cultivated in through the intercourse of ideas. In this instance, financial advisory best practices incorporates client's feedback into the enterprise strategy.

    If your clients are hurting, began by empathizing with them on their loss, while tacitly reminding them of the nature of the beast. Risks such as that which we are experiencing should have been factored into the client's investment strategy, however improbable.

    Small concessions in service can be offered to convey a level of empathy. I tend to agree with Bill, "An advisor should live and die with how his clients do."

Sign up to Morning Coffee!

Coffee mug

The essential daily roundup of news and analysis read by everyone from senior bankers and traders to new recruits.

Boost your career

Find thousands of job opportunities by signing up to eFinancialCareers today.
Latest Jobs

Sign up to Morning Coffee!

Coffee mug

The essential daily roundup of news and analysis read by everyone from senior bankers and traders to new recruits.