Listed below are the highest Three causes to fireside a monetary advisor, consultants say
Edwin Tan | E+ | Getty Images
Breakups are always difficult.
The relationship with your financial advisor is no different. But there are some telltale signs it’s probably time to quit, experts say.
“Ultimately, this is a business relationship,” said Micah Hauptman, director of investor protection at the Consumer Federation of America, an advocacy group.
“If advisors are not serving the client as they deserve or expect, ending the relationship is perfectly appropriate,” he said.
More from Personal Finance:
This is the “best defense” against inflation
How Apple’s new savings account rate of 4.15% performs
This is the best way to “Protect Your Money and Legacy”
Statistics vary on how many people use a financial advisor.
According to a 2019 CNBC poll, about 17% manage their money with the help of an advisor. A survey conducted by Northwestern Mutual last year found the proportion had risen to 35% during the Covid pandemic.
But only 6% of clients ever fire an advisor — suggesting it’s a “relatively rare occurrence,” according to a new Morningstar study.
Here are three situations in which it may make sense to break up.
1. The consultant doesn’t care about your goals
Most investors who have fired their advisor cite the poor quality of financial advice and services or the poor quality of the relationship as the main reasons for their breakup, according to Morningstar.
In fact, 53% of people said these reasons were responsible for their decision.
In other words, it’s largely not lackluster financial returns that people care about, said Danielle Labotka, behavioral scientist at Morningstar and co-author of the report.
Instead, problems can arise when an advisor doesn’t spend enough time understanding who their client is as a person or their personal financial needs and goals.
Ultimately, a client’s money — retirement savings or otherwise — is destined to help investors live their best lives.
“You want to work with a consultant who takes care of those goals,” Labotka said. “As an investor, you might not have thought about it that much. What are my deep goals here?”
2. The consultant charges a lot for what they do
Of course, some investors don’t expect (or want) this level of service.
You may be looking for maximized investment returns without paying much attention to comprehensive financial planning that includes things like cash flow, taxes, estate, and long-term planning.
But cost is important no matter the service.
Cost is the third most common motivator for firing an advisor, behind poor quality of advice and relationship, Morningstar found.
“If they charge 1% [a year] and all they do is portfolio management, that should raise some red flags,” Hauptman said.
The way I want to frame it is to look at cost and quality.
Director of Investor Protection at the Consumer Federation of America
Advisory fees are often (but not always) expressed as an annual percentage of a client’s assets. For example, a 1% fee on $100,000 equates to $1,000 per year.
Here’s the tricky thing: Fees are subjective.
While a 1% annual fee for investment management services is generally high, you may find the advisor’s efforts worthwhile. The same logic applies to the entire range of consulting services.
“I like to put it on cost and quality,” Hauptman said.
Customers should find out what their annual fees are in dollars (not percentages) and decide if it’s worth it to them. Or they can ask the advisor what their dollar fees are — and it’s a red flag if they’re hesitant to answer, Hauptman said.
3. The advisor is a bad communicator
Let’s face it, finance can be confusing — and according to Labotka, part of a consultant’s job is to simply explain concepts and strategies to clients.
“If everyone knew everything, we wouldn’t need financial advisors,” she said.
“Ensuring you have someone who is having those conversations with you – who is taking the time to go through the changes they want to make to you [financial] planning and why is an important source of value,” added Labotka.
Poor communication can also undermine a client’s trust in their advisor, Hauptman said.
Do they communicate when they say they will? Are you unavailable for a long time? Are they doing things that they promised or that you want and expect? Do they recommend things you don’t understand and can’t explain in simple words? asked Captain.