Rita Gunther McGrath, an
at the Columbia University Business School, knows a thing or two about numbers and performance. When she didn't like the numbers and performance she was seeing from her financial advisor, she took a simple, direct step – she fired her advisor.
"It was really all about poor performance," McGrath says. "I was with them for seven years and ended up with less money than I had sent to them. Honestly, I'd have been better off leaving it sitting in a bank account."
McGrath said her advisor had a poor understanding of her needs. "I'd go to these meetings with them and it was all pie charts and mumbo jumbo about portfolio diversification, investment horizons and technical stuff."
"What I needed (and eventually found) was someone to relate the financial side of life to ... well, life! Things like what our goals are, what are the big decisions that need to be made, have you taken care of your estate plans, can you get my husband and I in a room to have sometimes-difficult conversations, that sort of thing."
Not an Isolated Case
There are no hard and fast numbers on how often clients fire their financial advisors, but it's an issue on the radar screen of financial services professionals and certainly on the radar screen of their investment clients. But what are the primary drivers that cause clients to pull a Donald Trump on their investment advisors? McGrath adds lack of proactivity and lack of candor to the mix.
"After years of losses, do you think they would call me and have a conversation?" she asked. "No, it was radio silence for years. I decided enough already. And when I finally pulled my account and cited the poor performance, the response was 'but your husband's account did well …' instead of acknowledging the under-performance in my account and being forthright about it," she adds.
Kalen Holliday, communications director at Covestor, a marketplace for investors to find the right financial advisor, says she hears from dissatisfied financial advisory clients all the time – mostly after they just fired their advisor. "We hear it all," she says. "People complain about opening an account and then never hearing from the advisor, or feeling like they were overlooked for "only" having $500,000 in investment funds."
If investors have these experiences and if they feel like they're being spoken down to, or worse not listened to, they'll let that advisor go, says Holliday. "The bottom line is people want personal attention, plus decent performance and when they lack one or the other or both, they should fire their advisor," she adds. "If you haven't heard from your advisor recently, what are you paying him for?"
The Top Reasons Investors Fire Their Financial Advisors
Covestor.com offers a list of primary "deal breakers" that cause investors to pull the plug on their advisors:
- Performance: Clients are sick and tired of paying high fees for lousy performance and they aren't going to take it anymore.
- Lack of Attention from Advisors: They don't call, they don't write, they pretty much evaporate when the Dow is down.
- Fees: When clients are getting high returns, high fees won't make them wince. In today's economic environment, people are looking to cut costs; firing an adviser who isn't providing what they promised, is an obvious choice.
Human interaction is another big reason why clients take a walk, says Jason Laux, vice president of Synergy Financial Group, a Pittsburgh-based investment advisory firm. "The primary reason clients fire a financial advisor is lack of personal touch," Laux explains. "Clients can tolerate the ups and downs of the market, changing economic whirlwinds and an erratic interest rate environment if, and only if, they feel that their advisor is monitoring the situation and keeping them informed."
But nobody wants to be in the dark when it comes to their money, especially in troubling times. "Just knowing a plan is in place and that they are being cared for will provide the reassurance needed to maintain and build a strong working financial relationship," he says.
Importance of Realistic Expectations
Gregory Gallo, Co-Founder of The Opus Group, a Red Bank, N.J advisory company, says another big reason why clients fire their advisors is "overselling" their abilities. "Overpromise and under deliver, that's a big one," he offers.
"In my 16 years in the business, I have heard many advisors in an effort to "win" business, make statements to prospective clients that ultimately prove too good to be true." The obvious example, he says, is performance; telling a prospect that he will outperform the "market" is just setting the client up for disappointment. "When a client feels like they have paid good money for that underperformance, they simply leave," he says.
Other investment experts agree with that sentiment, adding that setting unrealistic expectations are linked to poor communication skills among advisors. "Promising investors returns that are way above market, and then not delivering on them, is a surefire way to lose clients," says Bill Hammer, Jr., a principle founder of the Hammer Wealth Group, a Melville, New York wealth management firm.
The Bottom Line
Failing to communicate with clients is the underlying problem, Hammer says. "Clients don't necessarily fire advisors only because of performance, but rather because the advisor never communicates with them. Failure to communicate leads to poor investor behavior (like buying/selling at wrong time) as well as a feeling that the advisor is "asleep at the wheel". Hammer adds that during inevitable disappointing periods of performance, it is crucial for advisors to communicate with their clients, even though many pass on that advice and risk losing their clients in the process – Donald Trump-style.
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