Why do investors fire financial advisors?
If you work in financial services, this is a question worth asking. Winning new business takes a lot of time and effort; retaining your existing clients means less time spent on the prospecting grind.
Delivering for your current clients can also help fuel your growth. Happy investors may be likelier to refer friends and loved ones to your firm.
If you know the mistakes most likely to drive an investor away, you can take proactive steps to avoid them. A survey from Morningstar unearthed insights into the six most common reasons an investor will fire their financial advisor.
We’ll explore those six reasons here, plus look at how fintech solutions can help you create a positive client experience that retains business and drives referrals.
6 Reasons Why an Investor May Fire Their Financial Advisor
To understand why investors fire financial advisors, Morningstar asked an open-ended question of survey respondents who indicated they’d previously parted ways with an advisor. It collected responses to the question, “Why did you choose to stop working with an advisor?”
In the 184 responses it received, some patterns began to emerge. Morningstar was able to group these open-ended answers into six broad categories:
- Quality of financial advice and services (32%)
- Quality of relationship with the advisor (21%)
- Cost of services (17%)
- Return performance-driven factors (11%)
- Comfort/discomfort handling financial issues (10%)
- Quality of communication (9%)
You’ll notice that, while cost and performance come up in some answers, most of the concerns expressed by investors were qualitative.
Let’s take a closer look at each of these areas of concern.
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1. Quality of Financial Advice and Services
Today’s investors have dozens of options for how to put their money in the market. Self-directed accounts and robo-advisors are affordable options that may make clients question why they’re working with an advisor.
Of course, you know that advisors bring valuable expertise and advice to the table. Vanguard has aimed to quantify the “advisor alpha” investors experience when working with a financial professional; what it’s found is that advisors can add as much as 3% in net returns for clients.
It’s up to you to prove your worth to investors, and there are several ways tech can help you do it.
Utilizing tech during prospecting can help you immediately differentiate your high-touch service from hands-off robo-advisors.
Orion’s BeFi-enabled 3D risk tolerance questionnaire helps you gather more detailed information on an investor’s feelings, thoughts, and attitudes around risk, which empowers you to create customized investment recommendations.
Our custom proposal generator lets you lay out your plan, and it can help investors visualize how the investment decisions they make today can enable the future they want.
Stress testing and risk analytics also help you demonstrate your advisor alpha. Run your proposed investment strategy through relevant stress-testing scenarios with Orion Risk Intelligence and show how you’ve taken downside risk into account in your plan.
Even better: Run the stress test on your proposed approach alongside the prospect’s current holdings in their robo-advisor account. Doing so illustrates the work you’re doing to help insulate them from hypothetical downside risk while maximizing the hypothetical upside.
2. Quality of the Client-Advisor Relationship
The best relationships — whether personal or professional — are built on genuine connection, understanding, and trust.
Clients who feel like their advisor is merely checking the boxes during their interactions may be more likely to look elsewhere for investment help.
Employing behavioral finance techniques in your client meetings and interactions can play a role in strengthening your bond and reinforcing your client’s belief that you are committed to offering them personalized, thoughtful recommendations and strategies.
A tool like Orion’s Protect Live Dream can provide your clients with a framework for understanding how your financial plan aligns with their unique goals. This individualized roadmap for the work you do together ties your proposed plan to their dreams, and it helps your clients see that you’re listening to their needs.
3. Cost of Services
Financial services pricing runs the gamut, and when compared to a robo-advisor, your offerings may look expensive. To ease concerns your clients express about the cost of your service, you have to demonstrate your value.
In its research on “advisor alpha,” Vanguard has identified behavioral coaching as one of the dimensions where you have the greatest potential to deliver meaningful expertise and knowledge.
When you incorporate behavioral finance into conversations around risk tolerance, financial planning, and day-to-day money management, you help clients see their blind spots. So often, how individuals react to money is driven by feelings — not logic. BeFi techniques help you bring calm, reason, and understanding to your client’s decisions.
When you can use BeFi techniques to reduce fear or help a client stay invested in times of market turmoil, you offer them a value that goes beyond your fee. You’re helping them stay the course, build wealth, and work toward their big money goals.
For your client, the conversation is no longer about the percentage they’re paying for your services today but the value they’re receiving. You’re providing things like a sense of security and a plan to access greater financial freedom — the kinds of things you can’t put a price on.
4. Return Performance-Driven Factors
You’ve seen the market's ups and downs, and you know it’s all part of the process. However, investors with less experience or a lower risk tolerance may have unreasonable expectations about their advisor’s ability to shield them from market turmoil.
While you can’t control the market or perform miracles during economic downturns, you can help clients understand the value of taking the bad with the good.
Leveraging past economic data can help you illustrate to nervous clients why there’s value in remaining invested regardless of the market’s fluctuations.
You may, for example, run your client’s portfolio through a stress-testing scenario based around past economic crashes. Doing so helps your client see that, if they’d remained invested throughout the Great Recession of the late aughts, they’d have rebounded faster than those who pulled their investments and got back in after the dust had settled.
Data can also help you stave off the myth that anyone has the power to time the market correctly. Numbers from the past 20 years show that the best and worst days in the market often happen within days of each other. Your client won’t find any advisor who can hit the highs and avoid the lows – they’re better off sticking with someone who preaches calm and consistency.
5. Comfort/Discomfort Handling Financial Issues
Sometimes, an inexperienced investor can be their own worst enemy. A client who lacks faith in their understanding of money may pull out of the market entirely — leaving their advisor behind, too.
One of the greatest gifts advisors can give clients is knowledge and confidence. When investors understand the plan for their money and why it matters, they may be more likely to stay the course.
Utilizing a fintech tool that gives your client direct access to their financial information can play a vital role in this education and empowerment process. Orion’s client portal offers investors a comprehensive overview of their current holdings and big-picture plan. When they can access this information, they may be more likely to take an active role in their own financial education.
They can easily contact you through the app if they have questions or need guidance. They can ask questions as they arise, and you can provide thoughtful, timely financial education and support.
6. Quality of Communication
Your work behind the scenes may be for naught if your client doesn’t feel you’re communicating it thoroughly.
A client relationship management tool, like Orion’s Redtail CRM, can help you manage your client interactions. The seamless dashboard makes it easy to pull all relevant client information before a call or meeting, so you have the data you need at your fingertips. Plus, built-in workflows allow you to stay on top of communications and establish a regular cadence for proactive client check-ins.
By enabling more regular, in-depth client communication, you foster a greater sense of trust with your investors.
You work hard to meet your fiduciary duty to your clients. But sometimes, it’s the qualitative elements of the advisor-client interactions that can make or break your relationship.
By educating yourself about the most common reasons clients fire advisors and taking proactive steps to address potential concerns, you can work to build a roster of clients who are eager to stick around and refer their friends and family to your firm.
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Today’s investors expect more than a transaction; they want a relationship. Show how your firm merges EQ and IQ with Orion’s latest BeFi tool — BeFi20.
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