Financial advisors get fired all the time. It can sting, but getting past that and understanding why you got canned will help you succeed in the future where you failed. Learning from you mistakes is crucial, but remember that advisors are not just fired because their clients lost money in the market. Several important social and relational factors like clearly understanding client goals and communicating effectively are key.
- People change financial advisors for several reasons, but poor market performance or high fees are not always the primary reason.
- Communication is a big issue: mis-communication, not listening to clients, or not communicating with them for long periods of time each can cause a switch.
- Setting realistic expectations and defining what success means can help keep clients on board even when markets turn against you.
Failure to communicate with clients is usually at the heart of the underlying problem that causes investors to fire their financial advisors, according to experts in the field. "Clients don't necessarily fire advisors only because of poor performance, but rather because the advisor never communicates with them," said Bill Hammer, Jr., a principal founder of the Hammer Wealth Group, a Melville, N.Y. wealth management firm.
Poor communication from the advisor can lead to poor investor behavior, such as buying or selling at the wrong time, and can make them feel like 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.
Rita Gunther McGrath, an Associate Professor 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 fired her advisor.
"It was really all about poor performance," McGrath said. "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."
Mis-Reading Client Needs
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."
She added that ultimately, what caused the dissatisfaction was her advisor's lack of communication. "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."
Other Deal Breakers for Investors
Kalen Holliday, communications director at Covestor, a marketplace for investors to find the right financial advisor, said she hears from dissatisfied financial advisory clients all the time – mostly after they just fired their advisor. "We hear it all," she said. "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."
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: Advisors 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 a different economic environment, people are looking to cut costs, so firing an advisor who isn't providing what they promised is an obvious choice.
Jason Laux, vice president of Synergy Financial Group, a Pittsburgh-based investment advisory firm, agrees that lack of human interaction is another big reason why clients take a walk. "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," explained Laux.
He added that 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 said.
The 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. "Over-promise and under-deliver—that's a big one," he offered.
"In my 16 years in the business, I have heard many advisors in an effort to 'win' business and make statements to prospective clients that ultimately prove too good to be true." The obvious example is performance – telling prospects that they 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 is 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," said Hammer.