As helpful as they can be, there are some legitimate reasons you should bid your adviser adieu.
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Roughly 1-in-3 Americans has worked with a financial adviser, according to data from Statista. And most of them say they’re happy with their adviser, according to Herbers & Company’s 2021 Consumer Financial Behaviors Study, which also revealed that people who’ve hired a financial adviser are three times happier with their life than others. More than 1-in-4 say a financial adviser is their most trusted source for financial advice, according to a 2021 Northwestern Mutual Planning & Progress study. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.) But as helpful as they can be, there are some legitimate reasons you should bid your adviser adieu.
1. Your adviser is non-responsive or doesn’t listen
“If your adviser doesn’t take your calls, responds slowly or doesn’t address your questions, that should not be tolerated. A great relationship should involve the client feeling heard. The adviser should have a great understanding of the client’s goals and develop strategies aligned with those goals. If the adviser isn’t asking questions or fails to listen, that’s a recipe for a bad relationship,” says Derieck Hodges, certified financial planner at Anchor Pointe Wealth Management.
As for how often you should communicate with your adviser, it depends on what your current financial needs are. “Once or twice a year may be sufficient for some, while others may need more attention,” says certified financial planner Grace Yung. This MarketWatch Picks story answers how often you should be talking to your planner and what you should do if you want to talk to your planner more often. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)
2. They’re not a fiduciary
Fiduciaries are legally or ethically bound to put their client’s best interests ahead of their own. If you’re questioning the motives of your financial planner, you’ll likely want to consider switching to a new professional.
“A fiduciary puts your needs first. One red flag is if an adviser works for free, but encourages you to buy products that pay them a commission. Many of us take it for granted that a financial adviser is putting our goals first but if they are not a fiduciary we can’t take that for granted. The key thing is to always ask your adviser not only if they are a fiduciary, but also ask how they’re paid,” says Bobbi Rebell, certified financial planner and author of Launching Financial Grownups.
3. There’s ambiguity in their compensation structure
“It’s important to understand how your financial adviser makes money, particularly if they work on commission. This helps ensure you receive objective advice. Ask for a clear explanation of their compensation, including how much they’ll earn based on their recommendations. If their response is vague or overly complex, it may be a tactic to keep you uninformed, potentially resulting in higher costs than anticipated,” says certified financial planner Jason Co of Co Planning Group.
4. Their performance is poor
“If performance is relative to market swings, that can be acceptable. If you are consistently underperforming in both good and bad markets to a risk-adjusted benchmark, then this is an issue,” says certified financial planner Ted Halpern of Halpern Financial. The best benchmarks to compare to are indexes that closely match your holdings: The most commonly used ones include the Wilson 5000, Dow Jones Industrial Average and the Russel 2000. To calculate risk-adjusted returns, pros employ risk measures like alpha, beta, R-squared and the Sharpe ratio to measure profit and volatility when comparing two investments.
“It’s important to not look at a few months or even a couple of years. Markets and investments are going to have down periods and you should expect that to happen sometimes but if over 5 years, you aren’t making progress, that’s a problem,” says certified financial planner Tara Unverzagt at South Bay Financial Partners.
5. They charge too much
Fees for financial planners run the gamut, but the ballpark range for professionals who work under an assets under management model typically charge 1% of assets under management. Advisers who charge hourly can cost between $150 and $600 per hour and advisers who charge a flat fee or per-project fee can charge anywhere between $1,500 and $10,000. Remember that you can always try to negotiate an adviser’s fees or request project-based options and package deals depending on your needs.
6. They’re unable to give you the advice you need
“If you find that your financial adviser constantly says “talk to a CPA” or doesn’t know how to answer questions you have about your finances, it may be time to look for a new adviser. It shouldn’t be surprising that they don’t know everything, but as a professional you pay for financial advice, they should be equipped to answer most questions you have about your finances. If this isn’t the case, it’s a strong indicator that they may be ill equipped to handle your level of complexity or possibly lack knowledge of financial planning altogether,” says certified financial planner Blaine Thiederman at Progress Wealth Management. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)
7. You’re confident in your ability to make decisions independently
“If that’s the case, then perhaps you don’t need an adviser. Most people, particularly those that have accumulated a large amount of wealth and have more complex issues aren’t always equipped to handle these things on their own,” says Joe Favorito, certified financial planner at Landmark Wealth Management.
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