Morningstar has researched why clients fire their advisors – and it's not always for the reasons you might think
The wealth management industry is ever-more competitive, with technology as well as other humans vying for your clients’ attention.
And while there will always be clients who are looking for the lowest fees or simply prefer to manage their money and investments on an app, many value other elements of their advisor’s service.
But client relationships share some themes with romantic relationships such as the risk of taking your client for granted, not communicating effectively, or not understanding what they need out of the relationship.
A recent report from Morningstar called ‘Why Do Investors Fire Their Financial Advisor?’ considers what tends to lead clients to break-up with their advisor.
It points out that losing a client has wider implications such as losing the chance of referrals and the potential for negative online reviews.
The research identified three recurring themes for clients leaving their advisor:
- Not focusing enough on the person side of personal finance
- Advisor not effectively communicating their value
- Mismatched expectations early in the relationship
Notice that fees and returns are not in this top three, although these were found further into the report with clients citing the cost of doing business with the advisor being too high or a lack of desired returns.
The survey asked more than 3000 participants whether they had ever fired their advisor and 185 responses in their own words were gathered from those who had.
The survey did not consider those clients who, while not ending the relationship with their advisor, chose to move assets elsewhere.
Most likely to fire you
It discovered though that clients with greater investable assets, higher incomes, and higher financial literacy were more likely to have ever fired an advisor, along with (perhaps unsurprisingly) older respondents.
Some key takeaways of the poll were that those who fired their advisor may:
- Be uncomfortable with the risk level
- Be more comfortable self-directing investments following the initial benefit of working with an advisor
- Be disappointed with returns
- Be Dissatisfied with the advisor’s communication – such as focusing too much on themselves rather than their client
- Find the cost too high
- Feel the advisor’s values did not align with their own
Quality of financial advice and services was the most commonly cited reason for ending the relationship.
Don’t get fired
The report concluded that there are several key ways to not get fired by a client including emphasizing the relationship you have, communicating your value, and setting expectations early.
The full report is at Morningstar.com
