Broker Check
A Template For How To Break Up With Your Financial Advisor

A Template For How To Break Up With Your Financial Advisor

April 24, 2024

How To Break Up With Your Financial Advisor

You’ve been going steady for years now but things have been fading. Your partner made a lot of promises early on that they haven’t kept and sometimes you aren’t even sure they know you exist. You think it might be best to go your separate ways but sometimes you wonder if this is just how relationships work. Is there someone better out there? 

No, I am not talking about your relationship with a significant other, I am talking about the one with your financial advisor. It may seem odd that a financial advisor would be giving advice on this topic but it is important to discuss. People don't sign a contract to work with financial planners so it is up to us to ensure our clients feel like we value them. So lie back on a couch and let’s go into a quick therapy session on whether the relationship with your current advisor is salvageable or whether to part ways to find a new advisor that is a better fit.

Lack of Communication

First up on our list of topics is the role of communication. Relationships are built upon communication. This is a tenet we hear constantly but we know it is easier said than done. One of the most common things new clients ask me is, “How often will I hear from you?” I have found this is because most of them never heard from their old advisor. In order to understand their expectations, I often ask them how much they would like to hear from me.

I can only speak to my process which is to check in once a quarter with a phone call to provide an update and ask if there is anything that needs attention. I make an effort to have meetings twice a year with each client with one of those being a comprehensive review at the end of the year. This meeting entails going over the current plan in great detail and making updates as needed.

Responsiveness to phone calls and emails is a must. There are few things as frustrating as reaching out to someone you are paying for a service and waiting days to hear back from them. Some advisors will take on more clients than they can manage or focus on the high-net-worth ones.  It is my belief that good advisors will make time for everyone, regardless of net worth.

Past Performance

I recently attended a business expo in Charlotte, MI, and was having an interaction with someone that went like this:

Person– “I think my investments are doing pretty well. They returned 15% last year.”

Me – “That is not bad but how did that compare to the benchmark?”

Person – “I am not sure.”

Me – “Did you know that the S&P 500 returned over 24% last year? Depending on your strategy, it might be worth reviewing.”

When it comes to investing, just because your investments are going up (or down for that matter) doesn’t mean you are in an optimal strategy for financial success. A sound advisor will communicate your performance by how it relates to a comparable benchmark. It is not realistic to think your advisor will outperform the benchmark every year but consistent underperformance could be a sign to start to ask questions.

One thing that can affect performance is having access to a wide variety of mutual funds. Some advisors are tied to certain fund families and only work with those. This can limit effectiveness if the funds have high fees or have below-average returns. Independent advisors are usually not tied to any companies. This allows them to only have the success of the people they work for as their primary motivation, not the size of commissions. Ask questions about why your advisor chose the funds for you and understand their track record of performance as well as cost. 

Financial Planning

I consider the golden rule for working with an investment adviser to be the value proposition. This means answering the question, "Why should you pay someone to help with your finances?"  The goal should be to gain more value in the services being provided than what it costs you. It is common for advisors to guide what investments best suit your needs and put together a strategy that can give you the highest probability of achieving your goals. This is a valuable service and is known as investment management. There are many other areas of your financial health worth giving guidance on including budgeting, debt payoff, education planning, retirement planning, and anything else that aligns with helping you achieve your goals. This is what financial planning truly is. Do you have a financial planner or an investment manager? 

I refer to planning as "creating your roadmap." We are all familiar with maps, right? (Okay, anyone over the age of 25 is). Many folks can identify where they would like to get to but need help with directions on how to get there. Financial planning is utilizing fact-based assumptions to create a roadmap to understand what steps to take in order to achieve your goals. It can provide a probability of success using tools like Monte Carlo Analysis to see how feasible they are given your constraints such as time or income. I utilize financial planning software that visualizes this roadmap to easily project out what the plan looks like and can adjust assumptions to understand their impact. 

A common example is retirement planning. Sound financial advice can show when you may be able to retire given your current investments, expenses, and how much you are contributing to your plan. It can show you what investments can provide what type of returns, how much you can safely withdraw each year, the impact that health insurance and long-term care can have, and estimate what type of wealth you can expect to pass along to your kids. There are several quantified sources of value from the roadmap (minimizing expenses, maximizing returns, less taxes etc) as well as some that can be difficult to measure including confidence in your plan and an earlier retirement. 

If your current financial advisor does not offer financial planning, you may be missing out on a valuable service. 

The Role of Financial Education

My personal belief is that one of the biggest reasons people don't invest is their lack of knowledge. I think that people make mistakes investing because they don't have confidence in their plans due to this lack of understanding. Financial advisory relationships should have a learning component for educational purposes. By educating the people we work with, it builds confidence in why we are investing the way we are and makes it easier to weather the storms of down markets. Even if done for informational purposes, shedding light on the best practices shows that your advisor has the heart of a teacher rather than just the skills of a salesman

Fork In The Road

You have given this decision careful consideration and have come to a crossroads. It may be time to set up a time to voice your concerns to see if your advisor can do more for you or it may be time to let them know you plan on moving your money to a new financial advisor. As with most important financial decisions, take some time to consider your options. There is no formula for your best course of action. Follow your gut, make your decision, and don't look back.

The Break-Up

If you have decided to go in a different direction, technically you don't have to make any sort of communication to your current advisor. A new advisor can handle all of the transfer paperwork and move your assets for you. I would recommend setting up a time in person, having a virtual/phone call with them, or writing them a termination letter/email. A termination letter is likely a first choice because it avoids difficult conversations and allows you to choose your words carefully. It is up to you to decide what course to take but keep in mind they have likely invested a lot of time and energy to provide you with a valuable service. Here are the important pieces to include for any of these methods:

  • Thank them for everything they have done for you. Include specifics on why you chose them and emphasize the positive aspects of working with them.
  • Help them understand why you are leaving. It can be easy to give the "it's not you, it's me" speech but be honest.  Feedback can be hard to hear but in order to improve people need to understand what areas they are falling short on. 
  • You do not need to ask any questions regarding the transfer process or transfer paperwork. Your new advisor should be able to take care of that for you. 

Get ready for the full-court press when you give notice you will be leaving. They are likely to pull out all the stops including a free meal, promises for enhanced services, and who knows what else. Many are highly trained in sales and know how to salvage a relationship. 

The reality is the same as anyone who has taken back a romantic partner when trying to break up with them. They will promise many things when a relationship is ending but are unlikely to follow up on those in the long term. People who are they are. I am not saying to never give someone a second chance but know when it is time to move on.

Note that there can be account closure fees and transfer charges to move your money from your old advisor. There is not much you can do to avoid these but one piece of advice would be to do an in-kind transfer as this can avoid liquidation fees that some firms charge. 

What To Know About Choosing a New Advisor

Okay, the uncomfortable part is done. Take a deep breath. Now we have nearly endless possibilities on who we can work with. It can be easy to seek out a big company name but as someone who works for a small firm, let me take a second to why to give a smaller company some consideration:

  • We can be independent: By not being tied to any particular company it gives us a tremendous amount of flexibility on funds, planning software, and anything else that can provide value for your plan
  • Personal relationships: Many large firms have turnover with advisors joining and leaving the firm. When you choose a firm owned by the advisor, that is unlikely to happen until they decide to retire.
  • Account fees: this is not always the case but some large firms are costly to work with. Independent advisors do not pay a large portion of their business to their supporting firm. This usually results in lower overall cost. 

Regardless of who you decide to work with, try to base your decision on the flexibility the advisor has to choose funds best for you, the costs involved, their emphasis on communication, their tools for financial planning, and how they approach minimizing taxes. 

Caution, not all financial advisors and investment firms are the same. First off, no entity regulates who can call themself a "financial advisor." Typically those who refer to themself as one have securities licenses that require being fingerprinted, having a background check, and passing proctored exams but that is not always the case. Some "advisors" strictly sell insurance products that can be expensive and/or have limited growth potential. Do your research to understand the abilities of anyone representing themselves as a professional advisor. 

It is worth mentioning the term "fiduciary" as I feel it is an important distinction. As a financial advisor, being a fiduciary means being legally and ethically required to put a client's best interests above their own. This provides protection for anyone working with a fiduciary to know that if the registered investment advisor does not follow this standard, they can be held legally liable. Not all financial advisors are fiduciaries so it can be a large benefit to have one that is just to have this additional peace of mind.

As Neil Sedaka sang, "Breaking up is hard to do." Change is never easy and we often get comfortable with "good enough." If you are considering a change, I encourage you to schedule a 30-minute initial consultation to see why working with our team can make all the difference.