Have you wondered if you should fire your financial advisor? You're not alone.
Poor investment performance is not the only reason people leave their advisors. That's because your financial health encompasses more than the returns on your investments. Here are four main reasons why people fire their financial advisors.
1. They are not listening to what's important to you.
According to Advisorpedia, 80% of widows leave their advisors within a year of their husband's death. The main reason is that their advisors failed to listen to their concerns.
These women said, "I just couldn't relate to him; all he spoke about was rates of return" and "He didn't listen to me, and I felt patronized when I asked questions."
The whole point of having an advisor is receiving guidance on achieving your life goals. If your advisor is not listening to you, it's time to find a new advisor. In addition, life is not static; you should be connecting with your advisor regularly when there are changes to your life situation — such as remarriage or the birth of a child.
In addition, your advisor should be proactively calling you whenever there are legislative changes that impact you or when there are significant economic shifts that may affect you or your investments.
2. They've never prepared a written financial plan
You should have a record of the advice your advisor provides. It helps you both stay on track. It would be best if she prepared a written plan with strategies showing how she intends to help you achieve your goals. Assuming she has discussed your personal goals. What else is money for but to help you achieve your goals?
3. They've failed to disclose fees
You need to know how your financial institution compensates your advisor — commission or fee for service. Has she disclosed it to you, and has it affected the objectivity of her advice? Are there any embedded fees in the investments she's recommending?
Most financial advisory firms compensate their advisors according to what you purchase from them. Therefore, asking your advisor how her firm pays her is essential. Generally, you don't pay for advice. Instead, you pay a fee to your advisor to manage your assets or purchase one of their products.
It does not necessarily mean your advisor won't be objective. But notice what she advises you to purchase. Does it align with your objectives? For example, if she is paid per transaction, does she call you often advising you to buy and sell?
4. They have failed to represent your interests
Working with a good financial advisor is working with someone who is looking out for your best interest. Someone who understands your tolerance for risk and financial objectives. Someone with a fiduciary duty.
A fiduciary duty obligates an advisor to act solely in the client's interest. Not all advisors have a fiduciary duty towards their clients. Work with someone who does. This includes looking at all aspects of your financial picture.
Your investments are just one segment of your financial picture. If your financial advisor ignores other aspects of your finances, such as your estate planning or tax minimization, it's time to look for a new advisor.
In Summary
Many people feel they can manage their finances without an advisor's help. However, a study titled Advisor's Alpha estimates that clients who work with an excellent financial advisor receive an average of a 3% increase in the value of their portfolios annually.
Over time this adds up to a large amount of money. Another advantage of having a good financial advisor is that they can manage investor behavior. Especially in times of market volatility when people are most likely to overreact.
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Article written by Jennifer Thompson