How to Fire Your Financial Advisor

Years ago, there was a television show called Caroline in the City, where the lead character was never any good at ending relationships. In one episode, she couldn't bring herself to change dry cleaners—no matter how many valuable pieces of clothing were ruined—until he died (and, at that, she gave the eulogy at his funeral).

And rather than tell her hairdresser she was seeking a new look from someone else, Caroline said she was moving to Norway, which the hairdresser bought until bumping into her at a party (and, at that, she hastily agreed to go rushing back to him).

Of course, Caroline was a fictitious character.

The difference between her and real people like us is that we could never pull off that Norway thing in the first place.

Ending relationships is never easy. The mere thought smacks of confrontation, hardship, betrayal, and a whole range of emotions most of us would rather avoid.

Still, the more you let a bad financial relationship linger, the more it costs you, literally.

When managing your affairs, remember one rule: Business is business. No matter your personal feelings for someone, he's gone if he can't do the job to your satisfaction. The fictional Caroline got lucky with the lousy dry cleaner because he died; you might not be so lucky if you pick a nice-but-incompetent financial planner.

Smart Investor Tip

Business is business. Your personal feelings for an advisor don't matter; if he can't do the job to your satisfaction, he's gone.

Typically, financial relationships end when expectations aren't met. If a real estate agent doesn't sell the house, your decision not to renew the listing is easy because the contract you signed was finite; in most investment, banking, accounting, and legal relationships, there's an unwritten stick-with-the-guy-for-life mentality. As noted in Chapter , the ideal relationship with an advisor ends when you die or he retires.

Firing an advisor is easy if you suspect fraud, wrongdoing, or any sort of problem. You don't just dismiss the counselor in those cases, you file complaints and pursue legal remedies to get your money back.

But short of those extremes, there are plenty of times when advisory relationships just don't work out, when you feel let down by the goods and services offered, and you believe you would be better off working with someone else. If a relationship sours for any reason, the dismissal process is simple and straightforward. You may allow a final chance at redemption, but here are the steps to follow:

Step 1: Talk to Your Advisor

At the first sign of trouble when service does not jibe with your expectations tell the advisor your concerns.

If the advisor pooh-poohs them, remind him that "It's my money." For that money, you deserve, at the very least, an explanation of why your expectations are not being met. If no explanation is forthcoming, you know the advisor isn't taking you seriously.

If that's the case, skip Steps 2 and 3 and go directly to Step 4.

Signs of an Advisory Relationship Gone Wrong

Your advisors work for you, and they should be responsive to your inquiries, needs, and issues. The following are all service-related reasons that show a problem in the relationship; if you have experienced even one of them, you should consider whether it was a "firing offense."
  • There is unexplained/unexpected account activity.
  • You don't completely understand the advisor's actions.
  • Promised services are not delivered.
  • Charges and fees are higher than anticipated, or there are hidden costs you were unaware of.
  • Key information is only revealed when questioned or when trouble is evident.
  • The advisor expresses disappointment or anger over your decision NOT to follow some piece of advice.
  • There are disagreements over core strategies/beliefs.
  • There are unpleasant surprises.
  • The advisor shows a lack of time and interest, as if he was more anxious to get you as a client than to serve you now.
  • Your spouse or partner distrusts the advisor (especially if you picked the advisor, and the mistrust from your significant other has increased over time).
  • Your advisor is thinking only "inside the box," so that your service is more one-size-fits-all than personalized for you.
  • The advisor treats you more like an account number than a client or friend.
  • The advisor fails to meet the expectations you set out during the hiring process.

Step 2: Redefine the Relationship with Your Advisor

You have explained what the trouble is. Now set out to fix it.

Don't change your expectations, but make sure your hopes for the relationship are reasonable. It would be unreasonable to expect an investment advisor to deliver above-average market returns when you don't allow her to buy securities that take sufficient risk to deliver those gains; it would be reasonable for the planner or broker to suggest ways of diversifying risks and goosing yields without putting your financial future in jeopardy.

Smart Investor Tip

Your expectations, to this point, have not been met, but don't change them. Simply make sure your hopes for the relationship are reasonable.

It is unreasonable to expect a tax preparer to cut your taxes by taking deductions he isn't comfortable claiming, but it is desirable to discuss all manner of deductions for which you qualify, even if a particular credit or benefit is worth just a few bucks. After all, it's your money.

You can even re-examine the basic levels of service being provided. If your insurance company raises premiums when they should be falling due to a clean driving record, consistently sends incorrect bills, and is just plain sloppy, you have a right to ask the agent to clear up the problems. You never would have anticipated these problems when buying coverage, and they are not the agent's fault, but if the agent won't go to bat for you and save you the hassle, you need to redefine the relationship.

Return on investment is the hardest area to judge. Presumably, you and your broker or financial planner set targets based on your investment profile. But many advisors are chastised by customers not for missing return targets but for not "beating the market." The Standard & Poor's 500 Index has no way of knowing when you are retiring or the kids are off to college, and a diversified portfolio—built to stay afloat when the market is imploding—will inherently lag the market during bullish runs. If you hired a planner or broker to help you retire or put the kids through school, and to manage your money in good times and bad, don't whack him because he did his job but you hate lagging the market during its hottest times.

If you no longer believe the advisor has the acumen to reach the investment targets you set together—and your unhappiness stems from the advisor's actions, and not from a downturn in the market that brings everyone down—then a change is in order. But when the stock market was imploding in 2008, I heard from a lot of consumers upset that their advisor hadn't completely sidestepped the carnage; they were down 10 percent in a year when the market was off more than 30 percent, yet they were still upset with the advisor's inability to make money in all market conditions. That's unreasonable and irrational.

Revisit what you sought out when you first signed on as a client and review how your needs have changed and how you see things differently now that you have had time to get used to having an advisor.

Make a list of what you want from the advisor, including the services you currently receive and the areas in which he or she falls short. Prioritize your wants, giving the advisor a chance to see how the service being provided is not meeting your key needs.

Realize, too, that the advisor may opt to drop you as a client, because she handles everyone the same way and you want services that are outside of that box. That's not necessarily a bad thing, particularly if some of your payment is refunded to salve your dissatisfaction.

If the advisor is willing to refocus his or her efforts to keep you as a client, set a specific trial period. During that period, say six months or a year, you should…

Step 3: What to Do Before You Fire Your Advisor

There's a bit of advance preparation before you fire an advisor. You may need to have records transferred or to take possession of some securities; you will want a place for those records and securities.

You may also need to be prepared to move some money around. Quit your brokerage firm, for example, and you may need to pull money out of mutual funds run by the house; even if you can keep the money in place while you search for a new advisor, you may not want to (since those investments may have been part of your problem with the broker). Transferring assets is a pain; make sure you know the rules and can avoid screw-ups that could cost you at tax time. Learn the rules involved before making a change; get the necessary information so your new advisor—whenever he is hired—can help you move your money.

Once you are prepared and you don't see the situation getting better, it's time to…

Did You Get a "Happiness Letter"?

If you work with an advisor from a big, name-brand firm and the company sends you a letter, out of the blue, to make sure you are happy with your counselor, check your pockets to see if your wallet is missing.

As mentioned in Chapter , a "happiness letter" sounds like a good thing, but in reality when a financial services firm wants you to acknowledge in writing that you are happy and satisfied with its services, it's a red flag.

The firm expects its customers to be pleased with the service they get, so its reason for sending a "happiness letter" is because someone at the firm fears that activity patterns in your account are awry, that you are trading, investing, or acting—with the advisor's help—in a fashion that might not be best suited for you. Sign and return the letter indicating your happiness and that testimony can and will be used against you in court; if you subsequently have a problem, allege that the broker was churning your account, or that the planner was selling you investments you did not fully understand, the firm will show that it asked you if everything was all right and that you said you were pleased with the service you received.

It is possible that the firm is simply doing quality control, but any sudden request for your feelings should be viewed as a danger sign, not a welcome mat. Review your account immediately to make sure everything is in keeping with the action plan you established with the advisor. If you see actions or investments you do not completely understand, you should immediately call the firm to arrange a meeting with the advisor and a supervisor; if the firm feared a problem in your account—which is why it sent you the letter in the first place—it will want to resolve any dispute before formal filings are made.

And even if you love the advisor's service today, you might want to consider whether you truly want that signed, dated note in your file, because it can only be used against you. You can always praise your advisor privately, or chat with their boss in passing, without putting anything in writing in response to a more formal inquiry.

Step 4: How to Tell Your Financial Advisor that He/She is Fired

The moment you are not satisfied with an advisor's performance, start preparing for this action. For an advisory relationship to work, you must trust and have confidence in the advisor and her abilities; if either of those elements is gone, so too is the advisor.

You can't get out of your obligations—the listing contract with a real estate agent, the management fee with a planner, surrender charges on an annuity or the unexpired term of a bank certificate of deposit—but you can be out the door the moment it can be opened. Moreover, if you believe the situation is desperate, examine the cost of an early escape, such as paying early withdrawal fees, surrender penalties, or simply foregoing services that you paid for but no longer want; in some rare cases, it is worth making your changes at all costs immediately, rather than letting time compound mistakes.

The actual dismissal should be clean and concise. If you need to notify the firm in writing, make the note short and say only that you no longer intend to use the advisor's services after a specific date, by which time you want possession of all monies, pertinent records, and paperwork. Even if you expect to file an arbitration case or a lawsuit, keep that out of your note; handle the business at hand and be as bloodless as possible.

If the advisor or a supervisor wants to discuss your decision, be brief and firm. This is when the situation can get ugly and emotional, and you don't need that. Worse yet would be to wind up like Caroline and the hairdresser, rushing right back into a situation that you already have deemed untenable. You should not be badgered, pestered, or otherwise bothered about making a decision that is clearly in your own best interest.

Having dispatched with the advisor, you are ready to:

Step 5: Hire a Replacement Financial Advisor

If you did not go through the full-blown process described in Interviewing a Financial Advisor while picking the departed advisor, change your interview and preparation style.

If you picked the departed helper as suggested, you need to start over again and try to figure out how to avoid making the same mistake twice. Ask yourself what went wrong with the relationship and what impressed you during the interviews that failed to materialize later.

Smart Investor Tip

Prospective new advisors should know you are coming out of a bad relationship; the troubles that led to the break-up should be key concerns, so describe what went wrong and lay out your expectations so that any new counselor knows they can meet your standards.

Make sure prospective new advisors know you are coming out of a bad relationship; express your concerns and describe what went wrong and what you expect from a new counselor. Ask how they would react in a situation like the one that ruined your last advisory relationship and whether they consider your expectations unreasonable. Be honest about the circumstances so an advisor can pull out of the running if you sound like her nightmare client.

Your new advisor should review the work of the departed player, keeping whatever is worthwhile. It's especially important to justify investment changes, as such decisions have tax consequences and may be motivated by self-interest (the new broker gets commissions when you sell the old stocks and purchase new ones, creating an incentive to say stocks purchased under your previous brokerage relationship were dogs).

The new relationship comes with no guarantees that it will be better than the old one, but if you learn from experience and hire as recommended in Interviewing a Financial Advisor, you should not have to go through many advisors to find one you can keep for a lifetime.

Key Points

  • Leave the emotions and personal feelings out of your evaluations—if your advisor isn't doing the job and can't change her ways to make you happy, she has to go. Make a clean break and move on.
  • If the advisor deserves a second chance, give him a plan of action that, if followed, would make you satisfied or, even, happy with his services. If he can't follow the plan, give him the boot.
  • Don't let a bad experience turn you off completely to hiring advisors. If you need help—if your personal circumstances and knowledge have not changed and don't seem likely to make you a good self-advisor—then you still need help. Don't be bashful about getting it, just be careful.
By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2020. Content published with author's permission.

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