Firing Your Advisor

8/1/2021

The relationship between an investor and their primary financial advisor can be a purely professional one, or it can become a friendly, more personal relationship. But, like all relationships other than family, they are not necessarily permanent.  Investors can decide at any time that they need to hire another advisor or replace the one they have.?

A majority of investors remain with their primary advisor?forever, however. The act of firing an?advisor?is not one taken by most investors. They may add?advisors?to their list of professional?relationships but?removing?an advisor from that list is not something many investors do.? 

Have you ever fired an advisor? Have you ever moved?investable?assets from one advisor account to another? How much attention do you pay to the performance of your financial advisor, and how critical are you regarding that performance?  What would cause you to change advisors?

Recent research from Spectrem Group indicates that only 20 percent of wealthy investors have ever fired a financial advisor. That percentage is a bit higher (26?percent) among investors who consider?themselves?very?knowledgeable?about finances and investing and much lower among those who?consider?themselves?to be not very or not at all?knowledgeable?(14 percent).  It is likely that those investors who do not consider themselves to be knowledgeable are more dependent upon their advisor.? 

It makes sense that investor knowledge would play a role in deciding whether to maintain a relationship with a financial advisor.?Without?some level of?expertise, how is an investor to know their advisor is not performing to the best possible ability? How can an individual compare their own advisor to others in terms of investment performance?? 

There is also a greater occurrence of investors firing advisors based on the investor’s risk tolerance. The more aggressive the investor, the more likely they are to have fired their advisor, although the occurrence is still relatively small.??? 

Investors?should set standards for performance by their financial advisor, and it need not necessarily?just?be regarding?investment?performance?against stock market returns. Investors should have set parameters for communication and a schedule for meetings.  It is also critical that investors understand what services the advisor is providing.  Such research can be challenging?for investors who do not know what questions he or she should be asking of their advisor.? 

Of the 20 percent who have fired their advisor, almost half did so?due?to poor portfolio performance, and again, that percentage is?much?higher (58 percent) among the very?knowledgeable?investors. But even 41 percent of those?investors?who are not particularly?knowledgeable?were able to discern their investments were not performing to the standard the?investors?wanted.?? 

But 42 percent of those investors who have fired an advisor have done so due to lack of?individual?attention. The amount of attention an investor desires from an advisor personal preference but should be?definitively?expressed before signing on with an advisor. Just as with?other?relationships, investors can invite their primary advisor to adjust their communication to a desired level, but an advisor who is concerned with client satisfaction?should?have asked that question as part of an introductory meeting and should know what is required to maintain satisfaction.? 

Thirty percent of investors fired their advisor due to fee concerns, and the occurrence of that decision was higher among those investors who are less?knowledgeable. There is a fear among those types of clients that they are being taken advantage of; investors should be educating?themselves?about the different ways fees are determined.? 

These are all good reasons for an investor to consider moving away from a particular advisor but should be done only after careful consideration. Investors who worry about the quality of their advisory relationship should know that leaving an advisor is an act that has been done by others, and a new relationship can be forged under more carefully discussed communication, performance, and fee preferences.