Many investors don’t necessarily fire their advisors — they just stop using them.
In 2021 and 2022, Morningstar conducted three surveys that asked investors if they had ever parted ways with an advisor. Of the roughly 3,000 responses, only 185 indicated that they had actually fired an advisor.
That number is low, but it also hides an underlying truth.
“One of the things that we’ve seen in the research is that many people don’t fire their advisor,” said Samantha Lamas, senior behavioral researcher at Morningstar and a co-author of a new report based on the results of Morningstar’s earlier surveys. “Instead, they’ll just take out assets. That’s damaging to an advisor’s practice, because this [client] is taking up resources without giving you all of their business.”
Perhaps even more concerning is that according to the authors, once an investor fires an advisor, they may not get a new one. Danielle Labotka, a behavioral scientist at Morningstar and a co-author of the report, told RIA Intel that only 30 percent of those who told Morningstar that they had fired an advisor still worked with one today.
The reasons given by investors for dropping their advisors fell into six general categories. The quality of financial advice and services (32 percent of responses) and the quality of the relationship (21 percent) were at the top of the list. These were followed by cost of services (17 percent), performance (11 percent), and a client’s comfort in handling financial issues on their own (10 percent).
While performance or the cost of advice are commonly believed to be the major factors behind an investor’s decision to drop an advisor, Lamas said that the two most cited categories in the Morningstar surveys — quality of financial advice and quality of relationship — indicate that some advisors may not be sufficiently addressing the emotional side of financial advice.
“Under [quality of financial advice], people were mentioning things like, ‘I couldn’t personalize my choices,’ ‘I was given cookie-cutter solutions,’ or ‘They weren’t providing us with the level of direction we were looking for,” Lamas said. “In the quality of relationship [category], people were saying, ‘I don’t think my advisor was acting in my best interest,’ or ‘I was more committed to my future than he was.’”
According to Lamas, these responses indicate that an advisor wasn’t focusing on the “personal side of the personal financial relationship.”
“They weren’t dedicating enough time to understanding who the client was as a person and then figuring out what their goals were and how [the advisor] could get them there. In a way, these could have been remedied by the advisor simply spending more time upfront trying to understand the individual,” Lamas said.
Demographically, people who had a higher income, a higher amount of investable assets, were older, and possessed a higher level of financial literacy were more likely to have fired an advisor in the past. Gender didn’t appear to play a part — women were equally as likely as men to have fired an advisor.
In the report, Lamas and Labotka created a ‘How Not to Get Fired’ list that provides potential solutions to the six most common reasons for firing an advisor.
When it comes to the quality of financial advice and financial relationships, the authors suggest that an advisor have a conversation with the client about the “best interest” standard and what it means for the client’s relationship with them. This can be supplemented with discussion guides and goal-setting exercises that can help advisors get a handle on the client’s deeper goals and needs.
As for cost of services, comfort or discomfort handling financial issues, and quality of communication, Lamas and Labotka suggest that advisors learn to better communicate their value by walking the client through the financial planning process and the various options and trade-offs and reaching out to clients to keep them updated on actions taken with their accounts.
As far as performance is concerned, Lamas and Labotka suggest setting expectations early; acting more like a financial coach whose goal is to teach the client the value of long-term investing; and reframing information to keep clients focused on the progress they’re making toward their long-term goals, rather than on return performance.
“Even if you think, ‘I haven’t had a client fire me in years,’ remember that it’s possible that they haven’t fired you outright, [and that] they may be doing things that could be making them not the best client,” Lamas said. “Read over the list, and make sure that you really aren’t having any of the issues commonly expressed by people who fire their advisors.”