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Whether it’s the 1962 or the 1975 version – both before my time – Neil Sedaka crooned “Breaking Up Is Hard To Do.” Turns out that’s true of clients and advisors with former often struggling to part ways with the latter even when their advisor isn’t living up to their standards.
Studies and surveys confirm there are myriad reasons why clients move on from an advisor and most of those reasons aren’t return-driven. Arguments over fees, not feeling heard or valued and being pitched investments and strategies that aren’t relevant or overly complex are among the reasons clients give advisors pink slips.
However, simply because the reasons are there to fire an advisor doesn’t mean clients are quick to do it. Reluctance to move onto a new advisor can cut both fires for clients and current advisors alike.
Clients Have Emotion, But They’re Not Ruled by It
Like any other breakup, clients view firing an advisor as an emotional act. Put simply, some clients are willing to give a subpar advisor latitude because they don’t want to hurt the advisor’s feelings. Likewise, some clients are reluctant to switch advisors because they find the process confusing and intimidating, but the reality is the new advisor can handle the related legwork.
The emotional component is good and bad news for advisors. It’s good news for the advisors that are putting in the work to retain clients’ business and because it indicates clients don’t take lightly dissolving these relationships. On the other hand, clients’ reluctance to end relationships with advisors means some may be “suffering in silence.”
Overall, it’s a small percentage of clients that have two advisors over the course of their lives and the percentage that have more than two advisors is even smaller.
“A stunning 52% of survey respondents have only ever worked with one advisor. Only 25% have voluntarily changed advisors once, and a mere 17% have changed advisors twice,” notes Dynasty Connect. “While the top reasons for switching advisors are no surprise – i.e., investment performance and an advisor’s retirement or firm move – interestingly, 30% of respondents cited “meeting a new advisor who impressed them more” as their inspiration for a new start. Personality/fit, fees and structure of fees, and lack of contact with their advisor were other key levers for change.”
Spotting Clients That Could Close to Leaving
As noted above, many clients are, for better or worse, “sticky,” but there are some telltale signs that some are ready to move on. Dynasty Connect points out that younger clients are more apt to switch advisors than their older counterparts. Same goes for folks with lower asset tallies.
That could be the result of the client setting portfolio performance expectations that no advisor can meet. Those situations are hard to grapple with. However, there are other scenarios, including major life changes, that can compel clients to move on. Big life alterations aren’t preventable, but resulting client loss is.
“Major life changes, such as marriage, divorce, or a move are also impetus for change. Newer clients initiate break-ups more often, which suggests the need for a longer honeymoon period between client and advisor to build trust and lasting engagement,” adds Dynasty Connect.