Top reasons clients fire their adviser

While instances of firing are relatively rare, Morningstar’s new behavioural research has suggested a number of changes advisers can implement to prevent such setbacks in their practice.

According to the research, which included a survey of over 3,000 individuals some of whom had terminated services with an adviser, motivations behind firing decisions can be traced back to three underlying drivers including insufficient focus on the person side of personal finance; advisers’ inability to communicate their value; and a mismatch of expectations early in the relationship.

Morningstar revealed that while only 6 per cent of the surveyed individuals had fired an adviser in the past, many had stuck with their adviser because they didn’t want to incur the cost of switching. Instead, they opted to move assets out of an adviser’s practice instead of ending the relationship entirely.

The quality of financial advice and services (32 per cent of responses) was the most cited reason for firing an adviser, followed by the quality of the adviser-client relationship (21 per cent). Cost of services (17 per cent), return performance (11 per cent), as well as an individual’s comfort handling financial issues on their own (10 per cent), were also among the top five reasons.

Morningstar’s research also found that cost and return performance weren’t always the basis for the client-driven separation. 

“The quality of financial advice and services was most frequently cited as the reason for firing a financial advisor, but the quality of relationship and cost also appeared more often than many of the other categories,” the report said.

“This suggests that although there are recurring themes for why advisers are fired, assumptions as to why investors fire their adviser may be overly focused on returns.”

How do advisers avoid being fired?

To help advisers retain their clients, Morningstar’s research also recommended several key changes based on the given circumstance. For example, if a person is unsatisfied with their financial adviser for reasons pertaining to quality of relationship or quality of advice, Morningstar suggested advisers could work on emphasising the person side of personal finance.

“In our data, when an investor cited a reason related to these categories, the issue often stemmed from an adviser not dedicating enough time to understanding who their client is as a person and what their personal financial needs/goals are,” the report said.

“Even some reasons related to a specific issue with an adviser’s services seem to start with an adviser not recognising the client’s need for a particular service. Many of these issues could be remedied by devoting more time, attention, and resources to understanding the client, and perhaps leveraging help from established discussion guides, checklists, and exercises.”

If the issue lies in communication or is based on the client feeling comfortable enough to handle their financial issues on their own, Morningstar assessed the importance of financial advisers effectively communicating their value.

The firm also cautioned that while these issues are often not problematic to the point of termination, they can still undermine business in the form of behavioural issues, lack of engagement, or ungiven referrals.