Why investment clients are firing their financial advisors
May 15, 2014
Why do clients fire their investment advisors? Changing advisors requires considerable effort on the part of the client so what motivates them to decide it is time for a change?
The Financial Advisor magazine surveyed almost 1,400 advisors in the United States about why clients had fired their previous advisor. This survey gives us an inside look at what motivates someone to change advisors.
First on the list at 72 percent, is the advisor’s failure to communicate on a timely basis. The client’s investments represents their ability to achieve their desired lifestyle. Communicating on something as important as one’s life goals needs to be done on a timely basis. Failure to respect that principle is the largest single reason why an advisor is replaced.
The second reason is the advisor’s failure to understand the client’s goals and objectives. That was mentioned by 51 percent. Understanding a client’s goals and objectives is the foundation for any relationship. It is impossible to provide the appropriate advice and service without knowing a client’s needs.
Reason number three at 43 percent is a failure to return telephone calls. Being ignored by an advisor who is earning money to provide advice is just plain rude. Clients select an advisor to help them navigate through the confusing environment of investing. Answering clients’ calls should be done promptly.
Reason four is that the advisor has produced poor investment performance results. This was a factor 34 percent of the time. The advisor, however, does not have any control over the market. Poor advice and service can be a cause for concern but poor investment performance might be the markets’ and not the advisor’s responsibility.
The opposite may also be true. When the market goes up and you are pleased with your advisor it may be the market that produces the result and not the advisor.
There may be cases that regardless of market performance you have an advisor that you feel does not have the ability to get you the investment returns you want. In that case it may be useful to change advisors.
Finally, advisors making claims they cannot keep, with a 22 percent rating, is the fifth reason clients change advisors. No one likes to be told told certain financial situations will happen only to be disappointed. In my opinion, this reason could have been higher on the list.
Over-promising in the world of investments can be dangerous. Particularly in the area of forecasting investment performance. This is often done after a few years of above average returns. Some advisors may predict these above average returns will become the new norm and continue.
You want to have achievable assumptions when long-term cash flow projections are done to see if there will be enough funds available to educate your children after high school or plan for retirement. That is critical.
Over-estimating returns on investments is dangerous. Conservative assumptions are what is needed when estimating how an investment portfolio might grow.
Otherwise, you will have a false sense of security when a more reasonable assessment of your circumstances is needed. You may have to save more or reduce your expectations.
These top five reasons why clients change advisors only tells half of the story. The other half is how hard it is to make that decision to leave.
Investors are often not confident in their ability to select a new advisor. They have changed advisors before only to find their new advisor is a lot like their old one.