6 Reasons Clients Fire Advisors

With the start of a new year, many clients will be putting New Year’s resolutions into practice. In some cases, one of these resolutions might be to find a new financial advisor.

There are a number of reasons that a client might decide to switch financial advisors. Here are six factors based on several studies that looked into clients’ rationale, plus strategies to keep clients in the fold.

1. Communication issues.

Infrequent or inadequate communication from an advisor was widely cited by former clients as a key reason for making a change. Many said that more frequent and more personalized communication would have provided clients with more confidence in their advisor and their advice.

In a YCharts study 85% of respondents cited their former advisor’s frequency and style of communicating as reasons they left.

2. Quality of the advice.

The quality of the financial advice provided, or at least the client’s perception of its quality, is a major reason why some clients leave their financial advisor. This is very much tied into the quality of the communication between the advisor and client.

Clients want to understand how the advice and services provided to them tie back into their specific goals.

3. Lack of timely follow-up.

Financial advisors are in the service business, and following up with a client in a timely manner is part of providing good service.

An advisor might be able to answer a quick question the same day or by the next day. A complex question of analysis might take considerably more time. It is always best to set a client’s expectations in terms of expected follow-up time.

4. Cost of service.

In a Morningstar study of clients who had left their advisor, 17% indicated that fees and the cost of services provided by the advisor were a key reason. This issue can be especially prevalent when the markets are declining.

Clients have access to a number of fee models. At the outset, advisors should discuss fees and should ensure that clients understand all fees that could arise, as well as the total cost of doing business.

5. Returns and investment performance.

While returns did not show up as the top reason that clients change their advisor, they are important. At the very least, clients have an expectation about how their investments will perform over time.

When a client’s portfolio underperforms unexpectedly, the client may feel let down that the advisor didn’t prepare them for this outcome. The client may also want to know why the portfolio was configured in such a way as to deliver this type of result.

Portfolio diversification can sometimes lead to short-term underperformance. Helping clients understand the asset allocation strategy that is in place can help them avoid a sense of betrayal when they encounter a temporary loss.

6. Lack of personalization.

An advisor has systems and processes in place to help run the practice. This makes sense. Even so, clients must feel like they are more than a number in a system. In the YCharts study, 75% of respondents who fired an advisor cited a lack of personalization as a reason.

Overreliance on a system in dealing with clients can make them feel that the provided advice is not tailored to their individual needs. Failure to stress the personalized nature of the advice can cause a client to look elsewhere for more curated financial help.

The Cost of Losing a Client

While these and other reasons can cause clients to lose confidence and ultimately move on, sometimes an advisor may be glad to lose certain clients. Perhaps they were not a good fit with the practice anymore, and both sides feel they would be better off ending the relationship.

Losing clients means lost revenue, of course, and now ex-clients likely will not be referring others to the practice. In some cases, clients will not make a total break, but rather reduce their assets with a firm.

This can be costly in that advisors still need to monitor them while they take up unprofitable practice space.

Retention and Relationship-Building Strategies

There are a number of steps to take to help cement client relationships and reduce client attrition.

• Show clients you care in every way and every setting. Relate to them and their financial situation in the same way as with a family member or a lifelong friend.
• Do the best job possible for each client at all times. Make sure the client understands a new recommendation or any other changes. No recommendation is too small; always ask if clients have any questions, whether by email, over the phone or in person.
• Communicate often and clearly. Don’t assume that a client always understands what is being discussed, even if this is a topic that has been brought up before.
• Anticipate fear when the markets drop, especially if that drop is pronounced. It’s important to understand which clients need their hands held in these situations.

Clients may question a recommended strategy, especially when the markets are down. This is actually good: It provides an opportunity to show them why these recommendations have been made for them. It’s also a good opportunity to get their feedback. If a change is warranted, so be it.

Even with this type of effort, clients may still leave. Reasons might include:

• A change in their situation. Perhaps their income has grown significantly through a major promotion at work and they may feel they need an advisor and firm with different expertise.
• Relocating to another city. Even with Zoom and similar tools, clients may want to work with someone local.

In situations like this and others, the best bet may be to part ways amicably while thanking them for being a client. Assure them that you will cooperate in making the switch and providing any information needed to the new advisor.

Besides being the right thing to do, this helps ensure that if asked they will say good things about their experience.