Financial advisors get fired all the time. When it happens to you, it can sting, but understanding why you were dumped will help you succeed in the future.
First, you should know that advisors are not just fired because their clients lost money in the market. Important social and relational factors are key to maintaining a positive and long-lasting rapport with your clients. Most of all, it's about communicating effectively with your clients.
Key Takeaways
- High fees or even poor market performance are not always the reasons why clients dump their advisors.
- Communication is a big issue: miscommunication, not listening to clients, or not communicating with them.
- Setting unrealistic expectations at the outset of the relationship is another big mistake.
Communication Breakdown
Failure to communicate with clients is frequently the reason why investors 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 makes clients conclude that the advisor is "asleep at the wheel." Hammer adds that during the inevitable disappointing periods, it is crucial for advisors to communicate with their clients. Some financial advisors can't face having difficult conversations.
Rita Gunther McGrath, a professor at Columbia Business School, knows a thing or two about numbers.When she didn't like the numbers she was seeing in her statements, shefired 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."
Don't wait for your clients to reach out to you. Take the initiative to reach out to them when there are important updates or changes in the market that could impact their investments. Proactive communication shows that you are actively monitoring their portfolio and are committed to keeping them informed.
Misreading 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, director of marketing and communications at Interactive Advisors, a service that matches investors and financial advisors, 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."
Interactive Advisors offers a list of deal-breakers that cause investors to pull the plug on their advisors. Among them:
- Performance: Clients are sick 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.When they're not, they look to cut costs. Firing an advisor who isn't providing what was promisedis an obvious choice.
Jason Laux, owner and retirement advisor of Synergy Financial Group, a Pittsburgh-based investment advisory firm, agrees that lack of human interaction is a big reason why clients take a walk. "Clients can tolerate the ups and downs of the market, changing economic whirlwinds, and anerratic 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 thereassurance needed to maintain and build a strong working financial relationship," he said.
1940
The year financial advisers became regulated by federal law under the Investment Advisers Act of 1940.
The Importance of Realistic Expectations
Gregory Gallo, the co-founder of The Opus Group, a Red Bank, N.J., advisory company, says advisors who get fired sometimes are guilty of overselling at the outset. "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 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.
Top Reasons Financial Advisors Get Fired
While people may fire their financial advisor for any number of reasons, here are some major factors to be careful of:
- Poor Communication: One of the primary reasons people fire their financial advisors is a lack of communication. Clients want to feel heard, understood, and informed. They expect timely responses to their inquiries and proactive updates about their investments. If they feel out of the loop or that their concerns aren't being addressed, they may seek out a new advisor.
- Mismatched Expectations: Sometimes, clients and advisors may have different expectations about their relationship. For instance, if a client anticipates a more hands-on approach with regular meetings and detailed explanations, but the advisor prefers a more autonomous approach, conflict may arise. Ensuring both parties have aligned expectations from the outset can help avoid this issue.
- Underperformance: Performance matters. If a client's portfolio consistently underperforms or fails to meet stated goals, they may look elsewhere for financial advice. While advisors can't guarantee certain returns, they can manage expectations, educate clients on market volatility, and craft a robust, diversified portfolio that aligns with the client's risk tolerance and goals.
- Lack of Personalization: Every client has unique financial goals and circ*mstances. They may fire their advisor if they feel their advice is generic or not tailored to their specific needs. Clients want to know that their financial advisor is taking the time to understand their situation and goals and crafting a strategy just for them.
- Trust Issues: The relationship between a client and a financial advisor is built on trust. If that trust is breached, it can be difficult to repair. This could be due to an actual mistake, like an unauthorized trade, or perceived dishonesty, such as a lack of transparency about fees.
- High Fees: Speaking of fees, clients may fire their financial advisor if they feel they aren't getting value for their money. This could be due to high fees or a lack of understanding about what they're paying for. Clear, upfront communication about your fee structure can help alleviate this concern.
- Not Educating Clients: Clients rely on financial advisors not only for advice but also for education about financial matters. If they feel they're not learning anything or that their advisor is unwilling or unable to explain things in a way they understand, they may seek out a new advisor.
Remember, as financial advisors, you can mitigate these issues by maintaining clear and open lines of communication, managing expectations effectively, offering personalized advice, maintaining the highest level of integrity, keeping your fees competitive and transparent, and continually educating your clients.
I'm an Advisor. How Can I Improve My Client Relationships?
Learn to communicate better. Excellent communication ability is at the top of the list of the skills needed to get and keep a job in any field. That means learning to really listen. Think before you speak. Avoid jargon. Never condescend to your clients. Those are good tips in any field but there's one extra for financial advisors: Keep in touch regularly, in good times and bad.
How Can I Compete Effectively as a Financial Advisor?
Keep in mind that you're competing against bots, stock chat rooms, and automated trading platforms. Being human is your biggest advantage. If you can communicate effectively one on one with a client, you've got something no bot can emulate (yet).
Which Credentials Can Help Me As a Financial Advisor?
In addition to the mandatory licensing requirements for different types of financial professionals, there are also several voluntary certifications that can demonstrate expertise in different fields. Two highly sought-after qualifications are the Chartered Financial Analyst (CFA) and the Certified Financial Planner (CFP).
The Bottom Line
As a financial advisor it takes hard work to attract clients, and even more work to keep them. Clients can part ways with their advisors due to poor communication, mismatched expectations, underperformance, lack of personalized advice, trust issues, high fees, and inadequate financial education. Advisors can maintain good client relationships by enhancing communication, aligning expectations, providing personalized services, maintaining trust, ensuring fee transparency, and offering continuous financial education.
