As with a marriage, no one ever enters into a relationship with an advisor with the expectation that they will leave the advisor for someone else, or to manage their investments on their own. Unfortunately, sometimes it becomes necessary to stop working with an advisor and begin working with a different advisor, or to even start managing assets without help. This doesn’t happen too often, and the reasons for it occurring vary.
Only seven percent of investors have changed their financial advisor in the past five years, according to Spectrem Group research. Seven percent of investors have dropped their financial advisor but never replaced the advisor, while four percent of investors have contemplated changing their advisor. That is a small percentage of investors who have taken that action, but for those who decided to make the change, it is a significant event. What brings investors to the point of feeling they need to change advisors or drop an advisor?
The top reason why an investor would fire their advisor is if the advisor does not return phone calls in a timely manner. Advisors who do not respond to phone calls timely are sending the message that the client doesn’t matter or is not important. What exactly does “timely” mean? Thirty-seven percent of investors expect a return phone call within two hours or less. Another 18 percent expect a response within three to five hours. Just over a third of investors are content with waiting for a return phone call the next day or later.
The next most common reason why an investor would fire their advisor is if the advisor was not proactive in contacting them. Communication can not only be responding to the investor’s calls, but must also include proactive communication, where the advisor has a purpose to their communication and the advisor is providing value in their communications. As with any relationship, communication is key, and it can’t only be in response to someone else’s communication.
Not surprising, the third most common reason why investors would fire their advisor is if the advisor didn’t provide them with good ideas and advice. One of the primary reasons why an investor would hire their advisor is because the advisor has knowledge and expertise that the investor doesn’t have, so it is critical for the advisor to provide good ideas and guidance. This does not mean that every piece of advice or guidance is perfect and wildly profitable, just that the guidance is suitable for each individual investor.
That is not to say that performance doesn’t matter at all, 23 percent of investors would change their advisor if the advisor was underperforming compared to the overall stock market, and 19 percent would change if they had losses over the span of five years. Losses over the span of two years would cause 18 percent of investors to fire their advisor.
Regardless of the reasons why someone may choose to fire their advisor, investors need to clearly convey to their advisor what their expectations are regarding communication and responsiveness.