A skilled and experienced financial advisor can play a critical role in any investment strategy. An effective financial advisor can guide you as you navigate the complexities of essential components, such as helping you grow your wealth, growth, minimize your tax burden, and plan for your retirement. A competent advisor does far more than manage your money; they align their tools and expertise with your vision to help you move toward your financial goals, maintain a cool head in volatile markets, and offer support as you navigate the big financial decisions you have to make.
The advisor-client relationship is a key aspect of financial health. However, it’s important to remember — not all financial advisors are created equal. While many industry professionals are dedicated, knowledgeable, and genuinely committed to their clients’ success, others may fall considerably short of expectations. Additionally, not every financial advisor is the right fit for you throughout every season of life. In this article, we’ll share with you some telltale signs that the advisor-client relationship isn’t working anymore.
Thinking about making a change? Make sure it’s the right one. Contact Good Life Financial Advisors of NOVA for a second opinion on your financial strategy.
Signs of Incompatibility in the Advisor-Client Relationship
Being able to identify when it’s time to reassess your advisor-client relationship can empower you with the knowledge needed to make informed decisions about your future. Remember, your financial advisor works for you. You have the right to expect excellent service, clear and prompt communication, and an investment strategy designed in the context of a comprehensive financial plan to help you pursue your specific financial goals. It may be time for a change if you feel these basic expectations aren’t being met.
Some signs of incompatibility with your financial advisor include:
Poor Communication
Effective communication is the cornerstone of any successful relationship. This is absolutely true in the advisor-client relationship as well. If your financial advisor is consistently challenging to reach, takes days to return your calls or emails, or seems disinterested during your meetings, these are clear signs of a communication breakdown. Your advisor or someone on their team should respond to you in a timely manner. In fact, poor communication is often cited in industry surveys as the number one reason clients fire their advisor.
No Personalization
Every individual’s vision for financial planning looks different. The right advisor will develop an investment strategy that reflects your:
- Goals
- Resources
- Risk tolerance and time horizon
- Unique life circumstances
Generic, one-size-fits-all advice can be a red flag that your current financial professional doesn’t fully understand your personal financial landscape and isn’t sure how to adjust their approach accordingly.
Failure to Inform/Educate
A solid financial advisor doesn’t just tell you what to do — they work to help you understand why you are doing it. Dismissing your questions or failing to explain their approach and recommendations can be a major disservice to the advisor-client relationship. Each interaction should help you feel more fiscally literate, informed, and empowered — not more confused.
Goal Misalignment
Financial goals aren’t just specific to the investor; they can (and often do) evolve over time. A capable advisor will remain attentive to these changes as they occur. Working with someone who pushes solutions that don’t align with your objectives or who seems more focused on their own agenda than your financial goals can be clear indicators of a poor fit.
Lack of Transparency
This can not be overstated: Transparency in the advisor-client relationship is a must. Your financial professional should be open about everything, including:
- Their overarching financial planning and investing philosophy
- The downsides of any strategy
- Potential investment risks
- Their own compensation structure
- Any inherent conflicts of interest
If you feel important information is being withheld or your advisor is evasive when asked direct questions, it’s cause for concern.
Insufficient Knowledge
Financial markets and regulations are constantly evolving. Your advisor should be committed to ongoing education and staying on top of industry changes. If your advisor lacks knowledge in the financial planning areas that matter most to you, it might be time to seek someone with more comprehensive expertise.
Ethical Concerns and Conflicts of Interest in the Advisor-Client Relationship
Ethical behavior is crucial in the financial industry. Your financial advisor should always act in your best interest, a concept known as fiduciary duty. Here are some ethical red flags to watch out for when considering whether or not to fire your financial advisor:
Pushing Proprietary Products
Many firms have internal financial products. However, if your firm only recommends its proprietary products without considering alternatives that may be a better fit, it could indicate a potential conflict of interest. A competent financial advisor will explore options from various providers to ensure you’re getting the most suitable recommendations.
Lack of Disclosure
Your financial advisor should proactively address any potential conflicts of interest as soon as possible. If you suspect your advisor isn’t being fully transparent about their incentives, it’s a serious ethical concern.
Decision Pressure
Always be wary of a financial advisor who frequently pressures you to make immediate decisions, particularly regarding large investments or significant portfolio changes. Ethical financial professionals understand that clients need time to consider major financial moves and should prioritize proceeding at a pace that makes them comfortable.
Performance Guarantees
Financial markets can be unpredictable and unexpectedly volatile, and no ethical advisor should ever claim otherwise. Promises of specific returns or guarantees about market-beating returns can be huge red flags.
Dismissive of Risk Tolerance
Every individual has a specific tolerance level when developing an investment strategy. Your chosen advisor should respect your risk tolerance and never push you toward investments that make you uncomfortable. Feeling pressured to assume more risk than you’re comfortable with could indicate that your financial planning professional does not have your best interests at heart.
Unauthorized Trading
Again, your financial advisor works for you. With the exception of a discretionary advisory account, any trades or changes to your investment strategy should be discussed with you for approval before it’s made. Unauthorized transactions are a severe breach of trust and may even be illegal.
Assessing Fees and Cost-Effectiveness of Your Financial Advisor
While cost shouldn’t be the only factor in choosing or terminating a financial advisor, it’s still an important consideration. When finding the right fit, focus on value and ROI rather than opting for the cheapest provider available. Yes, it’s important to be cost-conscious. However, choosing a financial advisor solely based on low fees can be a mistake. The cheapest option may lack the expertise, resources, or most importantly, the time to provide the level of service you need. Ultimately, good financial advice can potentially save or earn you far more than the cost of fees.
Here’s what to consider when assessing the fees and cost-effectiveness of your financial advisor:
Understanding Fee Structures
Financial advisors may charge fees in various ways:
- Percentage of Assets Under Management (AUM)
- Hourly rates
- Flat fees for specific services
- Commissions on products sold
Each structure has its pros and cons; what’s best depends on your individual situation. The key is understanding exactly how your advisor is compensated and ensuring it aligns with your interests.
Fee Transparency
As already mentioned, firms should be fully transparent about fee structure. All costs should be clearly disclosed and explained. If you find hidden fees or are struggling to understand what you’re paying for, it’s a red flag.
Value for Investment
Beyond assessing total costs, consider the services you’re receiving for your fees. Higher fees may be warranted if your chosen provider offers comprehensive financial planning, consistent portfolio assessments, tax optimization, and proactive communication. But if you’re paying higher fees you should be having conversations outside of basics like investment performance. And if your advisor or someone on their team doesn’t return your calls or emails, the time may be right to find a new advisor.
Performance
Keep in mind, investing in a long-term pursuit, and performance should be considered over years not months or quarters. However, your advisor should be able to explain to you their thinking and what role each position in your portfolio fulfills and why you own it. If they can’t, it is probably because they don’t understand and it may be time to look for a new advisor.
Poor Financial Advice: Understanding Its Impact On Short- and Long-Term Goals
The consequences of subpar financial advice can be both far-reaching and long-lasting. Here are some ways poor input and guidance can impact your investments and goals:
Investment Underperformance
Poor investment choices or inadequate diversification can lead to underperformance or worse, great performance can quickly reverse into meaningful losses. This means your investments aren’t doing what they’re supposed to do in your financial plan and could put your ability to reach your financial goals at risk. In my experience, this is a bigger risk than missing out on some extra growth.
Missed Opportunities
An advisor who isn’t proactive or lacks broad market knowledge might miss opportunities that could benefit you. This could include tax-saving strategies, emerging investment opportunities, or regulation changes that could impact your financial plan.
Excessive Risk
Working with a firm that doesn’t understand or respect your risk tolerance can leave your portfolio exposed to excessive and unnecessary volatility.
Tax Inefficiency
Poor advice impacts more than investments — it can also impact tax optimization strategies. Ineffective investment placement, missed tax-loss harvesting opportunities, or a failure to consider tax implications can all result in a higher overall tax burden.
Steps to Take Before Making a Change to The Advisor-Client Relationship
If you find yourself contemplating a change in this crucial partnership, it’s essential to approach the situation thoughtfully and methodically. Some steps to take if you’re considering firing your financial advisor include:
Step #1: Review Your Contract/Agreement
The first step in making changes with your firm is to review your agreement to understand the terms of your current contract, including any fees or penalties for terminating the relationship.
Step #2: Have an Open Conversation
Communicate your concerns with your current provider before making a decision. Have an open, honest conversation where you voice your concerns to see if they can resolve the issues and improve their services.
Step #3: Research New Potential Financial Professionals
Once you’ve decided that it’s time to move on, performing the research necessary to find your new provider is critical. Look for a firm with relevant qualifications, positive client reviews, and a proven track record of success. Consider each firm’s specific areas of expertise and ensure their offerings align with your needs.
Step #4: Interview New Prospective Advisors
Due diligence with prospects is essential to ensure you don’t go from one bad situation to another (or one that’s worse). However, you don’t want to get into the classic paralysis-by-analysis situation. Interview two to three candidates to find the best fit for what you’re looking for. When screening prospects, ask about their investment philosophy, communication style, and fee structure. Most importantly, you should consider how the new advisor will act differently in the area that caused you to fire your former advisor.
Step #5: Confirm Credentials
Take the time needed to verify an advisor’s credentials and check for possible complaints or disciplinary actions. You can check these at BrokerCheck and the SEC IAPD
Step #6: Understand the Transition Process
Work with your new chosen advisor to understand how your assets will be transferred and how long the process will take. Most assets transfer seamlessly from one advisory firm to another and do not involve you being out of the market for significant periods of time.
Step #7: Don’t Try To Time It
There is no perfect time to make a change from a bad advisory relationship. The best time is when you decide a change is necessary. Again, don’t get into paralysis-by-analysis.
Making an Informed Decision When Changing Financial Advisors
The decision to change financial advisors should never be taken lightly. Remember, it’s not just about the numbers. It is crucial to have an advisor who understands your unique situation, communicates effectively, respects your risk tolerance, and always acts in your best interest.
If you’ve identified several red flags with a current firm, it may be time to consider a change. However, don’t rush the process. Take the time to evaluate your situation thoroughly, communicate with your existing advisor, and carefully vet potential new prospects. Ultimately, you should feel confident and comfortable with the person helping you manage your financial future.
Contact Good Life Financial Advisors of Nova Today
At Good Life Financial Advisors of NOVA, we understand the importance of this decision. We’re here to help you navigate your financial journey, whether you’re looking for a new advisor or simply seeking a second opinion on your current financial strategy. Don’t settle for anything less than the exceptional service, respect, and expertise you deserve. Schedule an appointment with our team of financial planning professionals today for a complimentary second opinion.
