Working with a financial advisor means you’re in a relationship. People discuss things with a financial advisor that they would only reveal to a spouse, partner, or best friend, or maybe no one. These include family problems, feelings about money, and life ambitions (and sometimes even secret accounts). Sometimes, financial advisory relationships do not work well and leave clients feeling dissatisfied. If you are in that situation, it may be best to move on and find a different advisor and advisory firm that is a better fit for you.
In this article, we’ll discuss when ending the relationship with your current financial advisor makes sense, plus leave you with some final considerations before you make the breakup official.
Should You Fire Your Financial Advisor?
Before you serve your financial advisor a termination letter, you’ll need to understand why the relationship is unsatisfactory and if it can be mended. If you cannot identify the specific issues bothering you, rather than just a general feeling of dissatisfaction, you won’t know what to look for in a new advisor, and you may wind up in the same boat again.
We’ve outlined some legitimate concerns that may justify a breakup and some that you may want to re-think:
1. Poor Communication
According to a survey in Financial Advisor Magazine, approximately 12% of clients leave their financial advisors due to a failure to communicate. Maybe your advisor doesn’t communicate with you as often as you would like, does not explain things clearly, or does not use the form of communication that works best for you – for example, you may prefer phone calls, but the advisor relies on emails or vice versa.
If this is the main issue, try bringing it up – “I would like to hear from you at least every other month, and when the market takes a big drop,” or “I prefer to communicate with you by phone rather than through emails,” or “Sometimes, your explanations confuse me, so I need you to take more time to go over things.” If that direct, honest conversation brings about the desired change, great. If not, you now have more clarity.
2. Lack of Availability
If your advisor does not respond to messages within a reasonable amount of time, you may feel that you are less important than the advisor’s other clients, and that can eat away your relationship. It could simply be that you and the advisor have different expectations about what “responsive” means (this happens with married couples a lot).
If you expect to hear back within three hours and the advisor thinks that two days is reasonable, that is likely a fixable problem if you discuss it. It is possible that your three-hour timeframe may not always be feasible, but if a two-day response time is too long for you and your advisor won’t adjust, again, now you have clarity.
3. Bad Financial Advice
In their survey of over 184 investors, research from Morningstar found that nearly a third (32%) of customers who have fired their advisors did so because they received low-quality financial advice and services. Solid financial counsel is, of course, foundational to your advisor’s responsibilities and their obligation to you as their customer. However, differentiating between good and bad financial advice isn’t always immediately evident, so do your due diligence if you are questioning your advisor’s recommendations.
For instance, it’s not uncommon for customers to ask their advisors to provide proof of their financial expertise, such as their relevant certifications, education, or years of experience in the industry. A trustworthy advisor should give you some level of assurance that they have the background necessary to manage your investments and life savings. If you find that your advisor is unwilling or unable to discuss their background with you, it may be time to move on.
4. Failure To Listen
If your advisor does most of the talking during your meetings or asks questions but doesn’t seem to listen to your responses, you probably do not feel heard. If you told your advisor that your financial situation had changed significantly and he or she did not immediately recommend revisiting your financial plan, that suggests there is a problem in the relationship. However, sometimes people say they don’t feel heard when the reality is the advisor is not telling them what they want to hear.
For example, if a client says, “I want you to figure out how I can afford to remodel the master bathroom, take a big vacation, and buy a new car over the next 12 months without derailing my long-term financial plan,” and the advisor says that the next two to three years is more realistic, that doesn’t mean the advisor isn’t listening or that you should ignore them. If you push for something that is not good for your financial well-being, you should want an advisor who will tactfully push back. Not being heard is an excellent reason to find a different advisor, but if you do not always get the response you want, shooting the messenger won’t help.
5. Too Focused on Investments
A financial advisor who seems primarily interested in recommending various investments and financial products is waving a red flag. It suggests that the advisor receives some type of compensation when you buy something. If most of your conversations with your advisor are about stocks, bonds, and mutual funds, you need to be direct and ask whether they would receive a commission, fee, or other payment if you made the trade.
An advisor who sells investments or financial products (including annuities or insurance) is not acting as a fiduciary. In our view, that’s an obvious deal-breaker.
6. Less-Than-Satisfactory Results
Breaking up with an advisor over what you perceive to be inadequate investment returns is common but is often a wrong decision. Comparing your portfolio’s returns to the returns of the U.S. stock market (the S&P 500, for example) is almost always an apples-to-oranges situation. A diversified portfolio would hold some bonds and non-U.S. stocks, which provide essential diversification benefits (in other words, putting all of your eggs in one basket is a bad idea).
That means your overall returns will not match the U.S. stock market’s returns – they could be higher or lower at any given point in time. And, if you choose to hold a decent portion of your savings in cash because it makes you less queasy when the market takes a nosedive, that cash does not earn much of a return.
You may hear that a friend or colleague made a considerable return investing in some stock or other type of asset and wonder, “Why didn’t my advisor tell me to buy that?” Of course, people tend to brag about their wins and stay silent about investments that did poorly. Also, discussing returns without discussing the swings in price (volatility) that occurred along the way only looks at part of the picture. Furthermore, people seldom share their after-tax return number, which can make a huge difference.
Your risk tolerance, time frame, retirement goals, family needs, goals for your future, etc., are uniquely yours, and the returns your portfolio earns should be consistent with a plan designed with all of that in mind. “But,” you might say, “shouldn’t my advisor be able to deliver the best returns?” In a word, no. The return on an investment earned last week, last month, or last year has nothing to do with what it will achieve going forward. Financial advisors cannot see into the future, and breaking up with one for that reason does not make much sense. Be very wary of anyone who says they can time the market or pick winning stocks; the data clearly shows that people cannot do this consistently, and you’ll pay extra fees for the attempt, leaving you worse off in the long run.
Having said that, if your portfolio returns are very low or even negative when the U.S. stock market has done very well, that could indicate a problem. It may mean that too much of your portfolio is in unusual types of investments. Look at how your portfolio is allocated across different asset types (U.S. stock, international stocks, bonds, mutual funds, etc.), and if you see a heavy concentration that doesn’t make sense to you, ask for a meeting to make sure the investments are appropriate before you make a decision.
7. Not Worth the Money
Financial advisors who are fiduciaries do not earn commissions; we charge fees for our services. Some people question the value they receive for the price they are paying. A good advisor can save you many times the amount of whatever fees you pay by preventing you from making costly mistakes and providing tax-aware financial planning, and that is just for starters.
Year after year, a good advisor incorporates the twists and turns of your life into a custom plan designed to optimize the way your money can bring value to your life. A good advisor asks questions you probably do not even know to ask, takes on the burden of planning and investing, and handles all of the details so you can focus on other things.
The peace of mind that working with a trustworthy expert brings, in addition to the value of the time, energy, and expertise required to do the job well, far exceeds the fees most fiduciary advisors charge. If your advisor is not doing these things, you may not be getting good value for the fees you pay, and it may be appropriate to consider making a change.
Other Factors To Consider Before Breaking Up With Your Financial Advisor
If you resonated with some or all of the indicators discussed above, then it may be time to close out your current relationship and begin your search for a new financial advisor. Here are a few final considerations that will help make the transition as painless as possible.
Check your letter of engagement. Before you break up with your advisor for good, you should read through your letter of engagement and fully understand what you may be on the line for when you sever your partnership. A lot of work goes into an advisory relationship in the first year, and you may be liable for certain costs even if you decide you want to move on.
Investigate other options. Before you dive into a new relationship, you’ll want to research and understand your path forward. That should start by reflecting on what went wrong in your current engagement; from there, you’ll have a better sense of what type of financial guidance will work best for you. As you scout out new financial planning help, we recommend limiting your choice to fiduciaries, who are required by law to act in your best interest. For more guidance, consider asking these essential questions before you choose a new financial advisor.
Close out your account. Your new advisory firm should help you with the transition process, but it’s important to understand the potential fees, timelines, and paperwork that are associated with transferring your investments to another firm.
So, Should You Break Up with Your Financial Advisor?
As we noted at the beginning and throughout this article, working with a financial advisor means being in a relationship. Have you provided all of the information your advisor has requested? Can you think of any reasons why you might be challenging to work with? Have you disclosed everything you need to disclose, even things you might be embarrassed to reveal (while it might feel uncomfortable to announce a significant loss on an investment, it could be an opportunity to reduce your tax bill)? Have you discussed specifics like what you value most in life, where you might want to live when you retire or become feeble, and your charitable giving goals?
If you’re not having conversations with your financial advisor about all of these issues, your relationship isn’t all that it could be.
If you have decided you want to replace your financial advisor, we will welcome the opportunity to discuss what Gold Medal Waters can offer. We pride ourselves on the strength of our client relationships, which are centered around our goal of helping you figure out how your money can help you do things that give your life meaning.
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