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Poor performance may drive some people to break up with a financial advisor, but judging an advisor’s results is not only about the profits, or lack thereof, on your investments. Often, it is about trust, some experts say.
“The No. 1 reason people tend to go with an advisor is that they like them and feel liked by them,” said certified financial planner Tim Maurer, chief advisory officer at SignatureFD and a CNBC Financial Advisor Council member. “It’s not only because they like them, but it is a sign of a deeper layer, and that is trust.”
When trust is broken or in jeopardy in financial relationships, as in romantic ones, people often consider splitting up. If you are wondering whether it is time to move on from your financial advisor, here are three factors you may want to consider.
Quality financial advice
In a 2023 analysis by Morningstar, people who have fired a financial advisor gave researchers reasons including, “I felt like I was putting myself at more risk than I was comfortable with,” “the advisor was not providing us with the level of direction we were looking for” or “I thought he was looking at cookie-cutter solutions.”
That research shows that the top reasons people fire their financial advisor are the quality of the advice and services provided, the quality of the relationship and the value of working with that advisor relative to the cost.
“Their critique is of what the advisor is offering, not exactly the performance of their investments or how much the advisor is costing or charging them. It’s all about the services the advisor provides,” said Samantha Lamas, a senior behavioral researcher at Morningstar and co-author of the report.
Quality of the relationship
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Many people hire a financial advisor because they want an expert in their corner. They want that relationship and “they want financial advice that is suited for them,” said Morningstar behavioral scientist Danielle Labotka, also a co-author of the report.
People recognize financial advisors “can understand the goals, needs, desires, of everyday investors and help them make good financial decisions,” Labotka said, “and have a good financial plan that’s going to work for them and work for where they want to be in the future.”
If you are considering a breakup, it is important to ask yourself several questions about your relationship with your advisor, Maurer said.
“Do you feel like they know and understand you well, and what is important to you and your goals? Or are they representing their own perspective on financial markets or products they may sell?” Maurer said.
In deciding whether to stick with your current advisor, or find a new one, also ask if the advisor acts as a “fiduciary,” which means they must work in their client’s best interests. Certified financial planners and registered investment advisors, for example, are required to be fiduciaries.
Cost of services
“Financial advisor” is a catch-all phrase that can include many different types of financial professionals offering different services at varying costs — from an hourly fee to a flat project fee or a charge based on the percentage of your assets they manage. Some financial professionals earn commissions based on the products they sell.
The Morningstar report found that often, it is not the actual fee that causes clients to walk away from their advisor, but the perceived value for that cost.
“Even though people know how much they were paying somebody,” they may say, “I don’t really see how I’m getting my money’s worth here,” Labotka said.
“It’s important at the outset and throughout the engagement that the client and advisor understand the scope of services provided and the compensation that the advisor will be paid so that the client can understand the value of the services they’re being provided by their financial advisor,” said certified financial planner James Lee, founder of Lee Investment Management in Saratoga Springs, New York.
How to manage an advisor breakup
Researchers and financial experts say most people do not break up with their advisors — they simply stay the course.
“It takes a lot for someone to make a decision to make this change,” Maurer said. “You’ve given someone a great deal of access to your financial life, and it’s not a small thing to make a decision like this.”
That said, inaction or disengaging with a financial advisor may be a sign that you need to make a change. In doing so, it is important to check with the advisor or firm you are leaving to find out the process to sever ties.
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“The process may include notification periods and any fees associated with early termination,” said Lee, who is also past president of the Financial Planning Association, a professional organization for financial planners. “There could be fees associated with transferring accounts as well, so it’s important to understand what those fees may be.”
Lee and Maurer recommend contacting your advisor to notify them that you are leaving.
Thank the advisor for their years of service. Let them know you are moving your accounts elsewhere. Ask what fees may be charged for moving your investments.
While you do not have to explain why you are severing ties, doing so as a “professional courtesy” may help the advisor and the industry improve, Lee said.
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