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Why Some Clients Fire Their Advisors

July 16, 2013

Poor results and shoddy communication are the big reasons clients fire their financial advisors — but Investopedia says the two may be more closely tied, at least in clients’ minds, than many realize.

Columbia University Business School professor Rita Gunther McGrath pink-slipped an advisor for failing to fatten her nest egg and not telling her why. “I was with them for seven years and ended up with less money than I had sent to them,” she told the website.

And though used to weighing numbers and performance in her job, McGrath was unimpressed by her ex-advisor’s penchant for “pie charts and mumbo jumbo about portfolio diversification, investment horizons and technical stuff,” she added.

Kalen Holliday, communications chief for client-and-advisor matchmaker Covestor, says other game enders for investment-advice clients include “opening an account and then never hearing from the advisor, or feeling like they were overlooked for ’only’ having $500,000 in investment funds.”

Though Covestor says performance trumps communications as the biggest reason clients keep or fire their advisors, Melville, N.Y.-based wealth manager Bill Hammer Jr. says bad communication in the face of poor performance — which leads to panic-driven behavior (like buying or selling with the herd) that can set a portfolio back years — is the main thing that makes clients lash out. It’s during such times that communication is especially vital, he addd.

Gregory Gallo of the Opus Group, an advice firm in Red Bank, N.J., sees another communication theme behind the departure of financial-advice clients. Advisors get into trouble for promising too much — or seeming to.

“In my 16 years in the business,” Gallo told Investopedia, “I have heard many advisors, in an effort to win business, make statements to prospective clients that ultimately prove too good to be true,” especially when it comes to investment returns. “When a client feels like they have paid good money for... underperformance, they simply leave,” he added.

By Thomas Coyle
  • To read the Investopedia article cited in this story, click here.