Change poses its challenges. In fact, some people would rather fight than switch, maintain the status quo while they continue to grumble under their breath, or silently seethe to the detriment to their health.
Much like staying in a bad marriage can have a profound impact on your life, so can maintaining a relationship with a financial advisor when for any number of reasons, you are no longer in "love."
"When it comes to your personal finances, the stakes are too high to remain in an uncomfortable situation. It’s up to you to protect your financial future and your own peace of mind," says Kimberly Clouse, chief client advocate at Covestor, an online investment management company.
For sure, you don’t want to be rash and dump a financial advisor because of short-term performance. "Emotions can play a big part in firing an advisor, especially after losing money. But if you believe in the strategy and trust the advisor, don’t worry too much about some arbitrary short-term performance measure. No investment strategy is perfect, and all strategies have the ability to lose money in certain market conditions," says Anthony Criscuolo, a certified financial planner with Palisades Hudson Financial Group.
However, there are signs that you should move on.
Whose best interest?
If your advisor keeps pushing you to invest in opportunities in which you’ve made it clear you’re not interested, it might be time to go, says Charlotte Beyer, founder of the Institute for Private Investors, which works to improve the relationship between wealthy investors and their financial advisors. "You know your investment style better than anyone else, and if they’re pushing you to go against your preferences, you need to discuss where exactly the disconnect is," says Beyer.
Also be leery of phone calls telling you about a great, new investment opportunity and that you must act on now. Worse still if the advisor is not willing to take the time to explain to you what the investment is in a way that you can understand or why it’s so great. "This is likely a sign they don’t put your interests first," says Beyer.
Maybe it’s not personal
Then too, sometimes you simply "out grow" your advisor. This could be both the size of your assets, or more importantly, says Criscuolo, the complexity of your financial affairs.
"Someone you hired in your early 30s when you had fewer assets and simple goals, may not be the best advisor to take you through your 40s and 50s, if your assets have grown substantially and your tax and/or estate planning affairs have become more complex," says Criscuolo.
Lack of transparency
If an advisor tries to hide or complicate your fees, or tells you fees are not important, and to just look at the total return, that is a major red flag, says Criscuolo.
Fees matter, and you especially want to know how your advisor is compensated. You want to know what incentives he or she has to sell you certain products or make certain trades in your account. "Usually a fee-only advisor who collects a percentage fee based on assets under management is the best structure. You want an advisor to be only paid by you, so you know their loyalty should always be to you, and not to mutual fund companies or brokerage firms who pay them big commissions," says Criscuolo.
Get the facts, ask your advisor, "What is the total amount of fees an expenses that I pay each year, including advisory fees, investment management fees and other fees?" says Beyer.
Risk management is key to protecting your assets. The question though, is how does your financial advisor define and implement risk management.
Clouse says to ask specifically, "Where are the checks and balances in the management of my assets? Who is the custodian of my investments? Who monitors the money coming in and out of my account?"
It can be painfully clear that you’re not number one. If the advisor doesn’t return your calls, or takes forever to return your call, "this could reflect that either the advisor is scaling back work and headed to retirement or gone up market and you are not an important client," says Leonard Wright, a CPA financial planner.
Your financial advisor should make it clear to you that he really understands your financial goals. If you have never actually articulated those goals, your advisor should help you do so on his own initiative. He should go a step further and show you how the investment portfolio he suggests reflects these goals and is designed to help you meet them.
"If any of these elements of ‘what it’s all for’ are missing, that’s a big red flag in your relationship," says Clouse.
What good is all this advice?
Long-term performance matters. It’s a problem if you are being consistently sold underperforming investment products and most of them underperform. Lose 30% of your $1 million portfolio, and assuming an average return of 6% a year, it would take you more than six years just to get back to where you started, cautions Clouse.
Divide and conquer
Wealth management is a family affair. If your advisor prefers not to involve your spouse or significant other in financial planning discussions, or even take the time to explain something to your grown children, then you may wish to find an advisor who is more committed to your relationships, says Beyer.
Face the truth. If your gut is telling you things are not working out and just reading this has made you uncomfortable because there’s too much that rings true about your relationship with your financial advisor, bow out gracefully.