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Typically, this space is devoted to advisors, but as advisors know, they wouldn’t be in business if not for clients. Clients are the lifeblood of the industry and advisors know that, too.
So with those important factors in mind, this piece will be devoted to clients and those shopping for advisors. Those in the latter camp might be surprised to learn that many of their peers that have since linked up with financial professionals didn’t solely prioritize investment acumen. Actually, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors.
On another note, folks considering a new relationship with an advisors often have things in mind that they’re looking to avoid. Again, many of those things aren’t investment return-related. They can be as simple as personality traits and quirks. Clarity and honesty also reign supreme on clients’ list of important characteristics. Recent research by Morningstar turned up 15 frequent “misdeeds” committed by advisors. The research firm proceeded to polls clients on the ones that most upset them. Perhaps not surprisingly, failure to adequately and clearly articulate fees topped the list.
So without further, here are some key steps for prospective clients to take before committing capital to a particular advisors.
Credentials, Service Matter
First and foremost, anyone considering hiring a financial professional should take the time to ensure that person is who they purport to be. The Securities and Exchange Commission (SEC) provides tips on how to do that and a few minutes of related legwork can prevent a lot of headaches down the road.
“One rule of thumb is to review the advisor’s credentials and make sure they are a fiduciary. However, an advisor’s role does not stop there. As we saw from people’s responses, many investors are also getting emotional support from their advisors. Not only do their advisors have the necessary financial expertise, but their advisors help them manage their discomfort in handling financial issues and their need for behavioral coaching,” notes Samantha Lamas of Morningstar.
Then are considerations for clients that are, well, already clients. Everyone should endeavor to be a proactive client, meaning that a relationship with an advisor shouldn’t be “set it and forget it.” Translation: make sure your demands are being met if not exceeded and those extend beyond portfolio management. In many cases, advisors that excel at keeping clients happy do so through emotional channels and services beyond investments.
“Not only were their advisors providing emotional support by acting as buffers from the ‘overwhelming’ world of finance (discomfort handling finances), but they were also adequately addressing their financial needs by generating returns and addressing their holistic financial needs, from taxes to the costs of extended healthcare,” adds Lamas.
Considerations When Pondering a Breakup
Relationships with advisors are like any other in that some can encounter rough patches that ultimately lead to separation.
In many instances, clients part ways with an advisor because of costs, but it’s mostly about service not matching costs. One way to avoid is to have candid fee conversations with advisors before a commitment is made and be sure to detail to the advisor what your expectations for the relationship.
“Investors in our study were convinced to take this drastic step because their advisor wasn’t meeting their expectations. The advisor wasn’t generating the value they expected, wasn’t giving them the level of personalization they needed, and didn’t seem to care about them as a person,” concludes Lamas.