Have You Fired an Advisor?
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.
But a majority of investors remain with their primary advisor forever. 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 apparently 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?
As part of its monthly research with affluent investors, Spectrem asks a series of questions that are outside of its normal research topics. In February, the questions revolved around the concept of firing a primary financial advisor.
Among more than 800 investors, only 20 percent 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 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 that they are making a mistake by firing an advisor? How are they 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 risk tolerance of the investor. 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 habits, and should research industry standards for fee structure to determine if they are using the correct advisor. However, such research is difficult for an investor who does 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 requested from an advisor is a point of 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 attention level to a more desired degree, 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 in the communication area.
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.