3 reasons why it might be time to break up with your financial advisor – and how to do it

Bad performance may turn some people away from a financial advisor, but judging an advisor’s performance isn’t just about the return, or lack thereof, on your investment. Mostly, it’s about trust, some experts say.

“The No. 1 reason people tend to go with an advisor is that they like them and feel loved by them,” said certified financial planner Tim Maurer, managing director of the SignatureFD advisor and member of the CNBC Financial Advisor Council. “It’s not just because they love them, but it’s a sign of a deeper layer, and it’s hope.”

When trust is lost or threatened in a financial relationship, such as in a romantic relationship, people often consider breaking up. If you’re wondering if it’s time to leave your financial advisor, here are three things you might want to consider.

In a 2023 Morningstar survey, people who fired a financial advisor gave researchers reasons including, “I felt like I was taking on more risk than I was comfortable with,” “the advisor wasn’t giving us a level of the guidance we had were looking for” or “I thought you were looking at cookie-cutter solutions.”

The survey shows that the main reasons people fire their financial advisor are the quality of advice and services provided, the quality of the relationship and the value of working with that advisor in terms of cost.

“Their focus is on what the advisor provides, not exactly the performance of their investments or how much the advisor charges or charges them. It’s about the services the advisor provides,” said Samantha Lamas, senior behavioral researcher at Morningstar and co-author of the report.

Most people hire a financial advisor because they want an expert in their corner. They want that relationship and “want financial advice that’s right for them,” said Morningstar behavioral scientist Danielle Labotka, who is also a co-author of the report.

People realize 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 will they serve and serve where they want to be in the future.”

If you’re considering a breakup, it’s important to ask yourself a few questions about your relationship with your counselor, Maurer said.

“Do you feel like they know and understand you well, and what is important to you and your goals? Or do they represent their views on the financial markets or the products they can sell?” Maurer said.

When you decide to stick with your current advisor, or find a new one, also ask if the advisor acts as a “fiduciary,” meaning they must act on behalf of their clients. Certified financial planners and registered investment advisors, for example, are required to be fiduciaries.

“Financial advisor” is a catch-all term that can include many different types of financial professionals who offer a variety of services at varying costs – from an hourly fee to a project fee or a fixed fee. to the percentage of your assets that they control. Some financial experts earn commissions based on the products they sell.

A Morningstar report found that often, it’s not the actual fee that drives clients away from their advisor, but the perceived value of that fee.

“Even though people know how much they were paying someone,” they might say, “I don’t really see how I’m getting my money’s worth here,” Labotka said.

“It is important from the beginning and throughout the consultation that the client and the consultant understand the scope of the services provided and the compensation that the consultant will be paid so that the client can understand the value of the services provided by the consultant , “said certified financial planner James Lee, founder of Lee Investment Management in Saratoga Springs, New York.

Researchers and financial experts say most people don’t separate from their advisors — they’re always on the go.

“It takes a lot of time for someone to make the decision to make this change,” Maurer said. “You gave someone a big chance to get your financial life, and it’s not a small thing to make a decision like this.”

That said, not working or meeting 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 how to cut ties.

“The process may include notice periods and any fees associated with early termination,” said Lee, who is also a past president of the Financial Planning Association, a professional association of financial planners. finances. “There may be fees associated with resubmitting reports, so it’s important to understand what those fees may be.”

Lee and Maurer recommend contacting your counselor to let them know you’re leaving.

Thank the counselor for their years of service. Let them know you are transferring your accounts elsewhere. Ask what fees may be charged to manage your investment.

While you don’t have to explain why you’re severing ties, doing so in a “professional manner” can help both the consultant and the industry grow, Lee said.

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