Clients who leave their financial advisor may have several reasons for doing so. The advisor may have made a mistake in handling the account or may have placed a losing trade. In some cases, the advisor did nothing wrong, but the client has simply found another avenue that he or she considers to be a better option. Other reasons also exist, and advisors need to know the primary reasons why clients will leave them.
Some of these issues can be remedied, but there are times when it will be better for both parties to sever the cord that joins them.
Read on for why clients leave their advisor and for clues on how to avoid this happening. (For related reading, see: Why Clients Fire Advisors.)
Why Clients Leave
Clients can leave advisors for any number of reasons and most can be grouped into a few major categories. The most common causes for losing clients include:
- Account mistakes. Clients who hand their money over to a financial advisor expect it to be treated with care. Advisors who use the wrong paperwork, forget to sign key documents or commit other bureaucratic errors can easily alienate the client, especially when the advisor’s snafu results in a financial loss for the client. Advisors can prevent this by implementing a strict procedural code for all paperwork and administrative chores.
- Losing money. This is the most obvious reason why a client might leave an advisor. Although all portfolios are likely to perform poorly at some point under some conditions, advisors who lose money for their clients consistently will soon find themselves with a smaller client base. A long-term losing track record likely indicates poorly constructed portfolios or undisciplined investment strategies. Advisors who stick to tried-and-true long term investment strategies can generally avoid this problem.
- Fees and expenses. Advisors who charge commissions for their transactions can easily run up the costs of trading for their clients to an unreasonable level. Excessive commissions or other investment costs can cause many clients to head to the exit in frustration. This is especially true if the client was not informed of these fees beforehand. A clear written rundown of all fees and expenses to be charged can go a long way in alleviating this issue. (For related reading, see: Fee-Only Financial Advisors: What You Need to Know and Fee-Based Advisors vs. Commission-Based Advisors.)
- Poor communication. This is another big reason why clients leave. Advisors who communicate poorly or infrequently with clients can easily foster misunderstandings or other problems and may fail to meet client expectations as a result. This can be avoided by clearly spelling out such items as costs, fees, commissions, and the services that are provided in return for them. Advisors are also wise to schedule periodic meetings with all of their clients in order to ensure that everyone is on the same page. Advisors who attempt to aggressively manipulate clients into additional trades or transactions can also scare them off if they come on too strong.
- Personality conflicts. Even if everything is going relatively well in a client’s account, there are times when the client and the advisor are simply not a good match for each other. Advisors who are adept at trading stocks may be a poor fit for very conservative clients who are concentrating on preserving their principal.
The Bottom Line
There are many reasons why clients leave advisors, but those who follow the rules and take the time to communicate regularly and clearly with their clientele can minimize such a thing from happening. Although there might be times when it is best for a client and advisor to part ways, many of these breakups can be headed off with proper procedural preparation and common sense. (For related reading, see: Advisors: When Should You Fire a Client?)