Disposing of the services of a financial advisor shouldn’t be done after one or two bad patches, but if there is a reason to part ways, then the quickest way is best.
Recently at a BBQ, a good friend asked me how to break up with his current advisor. His advice had lost him money during the GFC, it wasn’t clear how much his advisor was being paid, and he felt his advisor was pressuring him to invest in his own company’s platform and range of products.
These factors had snowballed until my friend decided to move on. He had researched a shortlist of potential new independent advisors (neither of us mix friendship and money, so I wasn’t on his list) and he wanted reassurance he was doing the right thing. To help, I gave him the top five things I’d consider before firing my advisor.
Losing money stupidly
If my advisor advised me into products that failed or were frozen that would be a warning signal. It may be unlisted property investments, hedge funds or tax driven investments.
Lack of trust and chemistry
If my advisor didn’t listen to my opinion, return my calls or emails, was curt when I questioned advice, I’d be wary. They may be the expert but it’s my money. I don’t want an advisor who hides behind financial jargon, who can’t explain financial concepts simply or who I felt bullied me into financial decisions.
Non-transparent, confusing fees
I’d want a clear explanation of the fees I’m paying directly and indirectly (commissions, rebates, volume bonuses, etc). I’d want one simple dollar fee amount in writing each year. If they won’t do this, it would concern me. If you don’t know how your advisor gets paid, it’s time to ask.
One size fits all
If I received cookie cutter advice I’d be concerned. I don’t want a product salesperson with an expensive products pitch; I want unbiased advice. If my advisor sold their practice to an institution, clearly it‘s in their interests to sell me more products. It may not be in mine.
Chasing returns or churning my investments would be a red flag. Short-term chopping and changing merely adds to my fees and taxes. I’d avoid advisors who charge insurance commissions and churn. If I were passed from one advisor to another advisor, I’d end the relationship. A lack of continuity is not in my interests and selecting my advisor is an intensely personal decision. Ideally, I’d want an advisor who is truly professional, independent and who will be there for me for the next 20 years or more.
Breaking up can be hard or easy to do
Firing a financial planner can be a stressful process. You may feel guilty and be worried that your adviser won’t let you (or rather your fees) go easily. It’s like removing a band-aid. Ripping it off quickly hurts, but it’s better than doing it slowly. Don’t take it personally; focus on your future, act logically not emotionally, and have a plan before pulling the pin.
If you decide to manage your own finances, work with your advisor to extricate yourself from their platform and/or products. Read the fine print and part on good terms. Be mindful of any potential CGT implications. Be aware, the exit process may not be quick or simple – the longer the exit process, the longer you pay fees.
If you hire another advisor, liaise with them before firing your current financial planner and they can manage the transfer for you. They can even inform your prior advisor of your decision to move if you don’t want to have that discussion.
When not to fire your planner
If your advisor makes a mistake, that’s not the end of the world – no organisation is perfect and nor should you expect it to be. You should recognise they are human and they are doing their best. They may be constrained by their firm’s structure or the institution they are tied to. Rather, judge how they rectify their mistake and how they treat you for highlighting it.
If your portfolio has a bad quarter or two, don’t automatically pull the plug. Even Warren Buffett has periods where he underperforms. As long as you feel your investment strategy is sound, then be prepared to ride out the downswings when they come.
If you’re not happy with your advisor, openly raise your concerns with them. Honest two-way communication can often be the best solution. However, if this fails, firing your advisor may be your best course of action.