It’s not often that investors sever ties with their financial advisors, but when it happens it has to do with much more than cost and return performance, according to a report by Morningstar.     

“Lackluster returns are going to happen sometimes, so pinning the blame on them puts you in a powerless position when it comes to retaining clients,” research co-author Danielle Labotka, behavioral scientist at Morningstar, noted in the report. She also pointed to research on the Great Recession that found most clients stuck with their advisors during that period.

The Morningstar report included three surveys in 2021 and 2022. A total of 3003 people were queried on whether they had stopped working with advisors. Of that total, 184, or 6%, indicated that they had fired an advisor.

The motivations behind the firings boil down to three underlying drivers, the report noted: “insufficient focus on the person side of personal finance, advisors’ inability to communicate their value and a mismatch of expectations early in the relationship.”

The responses were categorized by common motivations.

Nearly one-third (32%) of the clients said they got rid of their advisor due to the quality of financial advice/services. That was followed by quality of relationship with an advisor (21%) and cost of services (17%) rounded out the top three responses.

Clients also cited being unhappy with returns (11%), discomfort with handling their own finances (10%), and feeling they were lacking quality communication (9%).

To avoid being in a situation where you risk losing a client, the researchers used insights from literature to offer the following best practices:

Emphasize The Relationship
• Have a conversation with your clients regarding your commitment to the best interest standard and what that means for your relationship with them and their money;

• Onboarding discussions should go beyond top-of-mind topics. Use discussion guides and tools to understand your clients’ deeper goals. Remember the client should be speaking for most of the conversation;

• Conduct goal-setting exercises with clients on a regular basis to keep up to date on their  evolving financial goals and needs.

Communicate Your Value
• Walk clients through the financial planning process and help them understand their options and what trade-offs they should consider;

• Help your clients understand the services you provide and how they can be used in their personal situation;

• Reach out to clients proactively – out of sight, out of mind;

• Keep clients updated on both the actions you take with their account and what market insights mean for them;

• Use different communication channels (for example, email, video chat) to be accessible to clients in a mode they are comfortable with.

Set Expectations Early
• Act as a financial coach/teacher and help clients understand the value of long-term investing;

• Remind clients that the metric for success is achieving their long-term financial goals, not a return percentage. Clients may need more reminders during times of volatility;

• Use the power of framing instead of meeting regularly for “performance report meetings.” Call them “progress meetings.” This helps keep long-term goals top of mind and de-emphasizes recent returns;  

• If a client insists on only investing for immediate return, consider releasing them as a client.