Tell me about discounts. What are they, when are they offered, and how do I get one?.


What is a discount?

In general, a
discount
is anything that lowers your fee to make it less than the institution’s
published fee
for the specific type of account or service.

Are discounts common?

Discounts are more common in bank Trust and
Investment Management
accounts than with
Brokerage
accounts because brokers frequently have their commission penalized for
discounting
below a certain amount.

Since many brokers charge a range of rates for the same
investment service
, you should make sure you are on the lower end of that range.

While virtually all banks give discounts to some of their Trust and
Investment Management
clients, they still charge the “full fee” to the majority of their accounts. Banks are notorious, however, for offering
huge discounts
to some accounts, and if you ask a bank Trust Officer about
discounts
they’re likely to say “
everyone discounts
”.

How are fee discounts provided?

The most straightforward discount is an explicit percent discount. For example, if you are given a 25% discount, the fee is calculated based on the fee schedule and the resulting amount is reduced by 25%.

Since there are lots of other types of fees charged by investment managers, there are also other potential
fee discounts
. Here is a list of the most common types of
fee discounts
:
  • Percent discount
    – the fee is calculated using a rate schedule and then reduced by the discount %
  • Reduced or waived minimum fee (a “
    minimum fee
    ”, as it sounds, is a minimum dollar amount you will pay in case your other
    fees
    do not exceed this)
  • Blocked asset - an asset is excluded from the fee calculation, lowering the market value that the
    rate schedule
    is applied to
  • Different fee schedule – using a rate schedule that is not the current
    published schedule
    for the
    investment manager
  • Reduced or waived base fee (a base fee is a flat $ fee added to any
    other fees
    )
  • Waived per issue fee ( a per issue fee is a $ amount for each holding, such as a piece of
    real estate
    )
  • Waived transaction fees (a
    transaction fee
    is a charge for a type of transaction, such as stock purchases)

How do I get a fee discount?

To get a discount, you have to ask. We suggest you tell the
investment manager
that you are very
sensitive to price
, and you are shopping around with the competition to see who will give you the best deal.

Typically the more money you are bringing to the
investment manager
, the more likely he or she is to give you a
discount
.

Also keep in mind the specifics of what you are bringing to the manager that might reduce the amount of work your account will be. For example, if you are bringing $10 million in assets, which includes $2 million in IBM stock that you bought 40 years ago and don’t want them to sell, you can make the case to “block” the IBM stock from the fee calculation, which would mean your fee would be charged on $8 million instead of $10 million. That would roughly correspond to a 20% discount, depending on the rate schedule, and would save you $ thousands per year in fees.