Why clients really fire their advisors

Clients rarely fire their advisors, but, when they do, it’s more likely attributable to the quality of the relationship than to fees or lower-than-expected returns, a new Morningstar report suggests.

Based on existing research, many investors stick with their advisors because they don’t want to incur the cost of switching, the report noted. When they do break with their advisors, reasons for termination can usually be traced to insufficient focus on the “person side” of personal finance, the advisor’s inability to communicate their value or a mismatch of expectations early in the relationship, the report said. It was based on three surveys conducted during 2021 and 2022 of 3,003 U.S. respondents, 184 of whom (6%) terminated services with their advisors and were asked why.

Even when such reasons don’t result in termination, “they can still undermine business in the form of behavioural issues, lack of engagement or ungiven referrals,” the report said.

It suggested that onboarding discussions should go “beyond top-of-mind topics” and use discussion guides and tools to understand clients’ deeper goals. Further, the client should be speaking for “most” of the onboarding conversation, it said.

Advisors can also remind clients that the metric for success is achieving their long-term financial goals, not a return percentage, and they can conduct goal-setting exercises with clients regularly to keep up to date on their evolving financial goals and needs, the report said.

Also, instead of conducting “performance report meetings,” advisors can have  “progress meetings” to keep clients focused on long-term goals and de-emphasize recent returns.

“If a client insists on only investing for immediate returns, consider releasing them as a client,” the Morningstar report said.

Nearly one-third (32%) of the respondents who fired their advisors did so because of the quality of advice and services (goals weren’t achieved, they said). One-fifth (21%) walked because of the relationship quality (e.g., mismatch in values, lack of trust); 17% due to cost of services; 11% because of returns; 10% due to confidence in handling financial issues; and 9% due to communication quality.

This breakdown was based on categorizing each response into a master list of common motivations, a Morningstar spokesperson said in an email to Advisor.ca. Respondents who fired their advisors had higher incomes, more assets and greater financial literacy, and were older compared to those who never fired their advisors.

Such characteristics could be the result of having more experience working with an advisor, the report authors suggested.

Survey respondents were recruited through online research platform Prolific.