Your financial adviser is an important player in your life, but the relationship can be complicated. Although the adviser is not a relative, the relationship tends be very personal, after all, who knows your financial history and details better?
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Relationships with advisers are built over time, and, as you go through the different life stages, your financial adviser should be there to help guide your investments to grow with you. But sometimes that doesn’t happen, and it might mean it’s time to break up.
“The adviser-client relationship is similar to what we have with our doctor—a totally open and honest relationship where the adviser isn’t judgmental,” says Certified Public Accountant Robert Chapman. “Every person has their own unique emotional relationship with money, and that’s why there’s a high level of integrity, confidentiality, and trust.” This is a personal relationship within a professional capacity where you can talk openly about one of the more private aspects of your life—your finances.
Before engaging in a relationship, most people do due diligence on their adviser’s credentials, communication skills, compliance record and experience, according to Chapman. An adviser should have a Form ADV that’s filed with the SEC for themselves and their firm, and you can look at BrokerCheck on FINRA.org for brokers’ licenses and whether they have had any complaints filed against them or suspensions. Experts also recommend asking about an adviser’s compliance and who provides oversight over their business, as well as whether they have a support staff.
A good adviser takes the fear and emotion out of investing and will be able to bridge your emotional ability to take risk with your financial ability to take risk. Problems in a client-adviser relationship begin when clients stop trusting their advisers, says Robert Stammers, chartered financial analyst and director of Investor Education for the CFA Institute. “Often, this is where there’s a breakdown in the relationship. At the end of the day, if you don’t trust them, you won’t be able to have a long-term relationship with them.”
Before these relationships turn sour, there are telltale signs of when it’s time find a new financial adviser.
Too many philosophical differences. When a third-party helps with decisions, it helps you make more disciplined and less emotional financial decisions, says Stammers.
“If an adviser can’t determine a client’s financial goals, then they can’t put together a portfolio to help their client achieve those goals,” says Stammers. Working with an adviser is more about risk management rather than returns, and a client’s financial goals determine the portfolio strategy. If your portfolio doesn’t reflect your risk tolerance or goals, Stammers recommends discussing this with your adviser.
Poor advice and portfolio performance. Sometimes a bull market can mask issues with your relationship. “It’s easier to trust your adviser when you have strong returns because of the market,” says Kelly Campbell, founder and chief executive officer of Campbell Wealth Management. “They may have made changes to your portfolio in a down market that may have been in their best interest and not yours, and these changes didn’t prevent you from losing money.”
When your adviser’s advice is in their best interest and not yours, “you may find this out from another adviser, a friend who knows the business, or by doing your own research,” says Clark Blackman II, president and chief executive officer of Alpha Wealth Strategies. Whether or not your adviser has good intentions, bad advice can cause you to lose trust and confidence in your adviser’s abilities.
If your adviser isn’t knowledgeable in a particular issue and unable to help you, a good adviser will find someone for guidance, says Blackman. “An adviser has a responsibility to do that even though it’s not in their best interest. They have a professional responsibility and are required to give advice only in areas in which they are competent.”
Lack of communication. “Understanding what a client wants to get out of a portfolio is as important as understanding what assets to buy in a portfolio,” says Stammers.
Since investments can be complicated, and you may have questions about the adviser’s strategy, he or she should be willing to take the time to explain each step and decision--no matter how basic, says Blackman. “They shouldn’t make you feel uncomfortable because you asked a tough question. No question is tough.”
Although not every adviser is the best communicator or has the best people skills, this may work for you but, in some circumstances, this could be a reason to terminate the relationship.
“If you don’t understand what you’re investing in or are not able to talk about an investment with your adviser, that’s a red flag,” says Chapman.
Lower level of service. Experts recommend having a conversation with your adviser if they aren’t putting you first or you don’t receive regular communications.
“When a client calls, there’s nothing more important at that moment to the client,” says Blackman. If a client asks a question, they should hear back from their adviser within 24 hours, even if the answer is “I am still researching to find out.” Frequent portfolio updates should be standard.
If you’re not given enough information in your reports to understand your portfolio performance despite repeated requests, Blackman suggests asking for more information and benchmarks and, if you can’t get there, to consider changing advisers.
Undisclosed fees and lack of transparency. Experts recommend that clients understand their adviser’s fee structure, whether fees are paid for selling securities or on a commission basis. “An adviser should be transparent about how they do business,” says Chapman. “An adviser is obligated to disclose fees to a client, but that doesn’t always happen in practice.”
If the fees aren’t transparent and you discover that your adviser hasn’t been honest about their compensation and the firm’s compensation from your account, “you need to move on,” says Blackman.
Stammers recommends that you do your due diligence ahead of time and find someone who thinks like you, who you get along with, and who you trust. “People shouldn’t get rid of an adviser on a dime because you’ve built value over time,” says Stammers. “Once you change your adviser, you need to start over with someone new. You need to have a very good reason to leave.”