Clue: it's not because of returns
Investors don't usually cut connections with their financial advisors, but when they do, a Morningstar survey says it has far more to do with personal performance than cost and return.
The poll indicated that just 6%, or 184 of the 3,003 investors surveyed, had terminated a relationship with an advisor, despite certain industry data emphasizing that a significant percentage of investors — especially inheritors — end up terminating their financial advisor. Nevertheless, Morningstar emphasized that it was crucial for advisors to comprehend the driving forces underlying dismissal choices.
“Lacklustre returns are going to happen sometimes, so pinning the blame on them puts you in a powerless position when it comes to retaining clients,” research co-author Danielle Labotka, behavioral scientist at Morningstar, said. She also pointed to research on the Great Recession that found most clients stuck with their advisors during that period.
Three polls were conducted in 2021 and 2022 for the Morningstar study, asking 3003 respondents if they have stopped consulting advisors. One hundred eighty-four (184) respondents, or 6%, said they'd terminated the services of an advisor.
Three underlying factors contributed to the termination: an inadequate emphasis on the human side of personal finance, advisors' failure to clearly articulate their value, and a misalignment of expectations at the outset of the partnership. The quality of financial advice/services was cited by nearly one-third (32%) of clients as the reason they fired their advisor, followed by the quality of the relationship (21%) and the price of services (17%). Nine percent (9%) of respondents noted the effectiveness of communication.
“The quality of financial advice and services was most frequently cited as the reason for firing a financial advisor, but the quality of the relationship and cost also appeared more often than many of the other categories,” Morningstar stated in the report. “This suggests that although there are recurring themes for why advisors are fired, assumptions as to why investors fire their advisor may be overly focused on returns.”
The research also found that those with better salaries, more investable assets, and greater financial awareness were more likely to have fired an advisor in the past. Additionally, the average age difference between those who have fired advisors and those who have not was statistically significant, indicating that older investors were more likely to have done so in the past.
In addition, Morningstar offered advice on how advisors can address the main causes of advisor termination, including emphasizing the relationship, talking with clients about the best interest benchmark, using discussion guides to understand clients' deeper goals, and engaging clients in goal-setting practices.
Advisors can highlight the value they provide to clients, including assisting with service comprehension, proactively interacting with them, and using various communication methods. Additionally, they should emphasize the importance of long-term investing and set expectations early.
