Morningstar’s Samantha Lamas and Danielle Labotka explain some of the key details of research they’ve recently carried out into why clients fire their adviser. Spoiler alert – it’s not always for the reasons you might think!
Last month, in a particularly popular IFA Talk podcast conversation with Sue and Brandon, Samantha and Danielle explained some of the details. You can listen to it again here https://ifamagazine.com/podcast-52-why-do-clients-decide-to-fire-their-adviser-with-morningstars-samantha-lamas-and-danielle-labotka/
In this article, they follow on from that conversation, with some of the practical steps you can take to avoid parting company with a valued and valuable client.
The sting of losing a client can be profound and may manifest in sunk costs, loss of referrals, and bad online reviews for advisers. It can be tempting to blame lacklustre returns for a client leaving, but this absolves the advisers of any blame. There are multiple other reasons why clients ditch their advisers, according to previous research.
In the recent study we carried out at Morningstar entitled Why Clients Fire Financial Advisors and How You Can Be the Exception we sought out to examine why investors fired their advisers to uncover what they could do to prevent their relationships from souring.
Why are advisers getting fired?
We asked investors who had previously fired their financial adviser, “Why did you choose to stop working with [an] adviser?”
Clients fired their reason for six common reasons, which were:
For most clients, firing their adviser was more complicated than just being unhappy with returns. Though financial reasons such as quality of advice, cost, and returns played some role in clients’ firing decisions, advisers should prioritise addressing emotional drivers to help safeguard their relationships.
What can advisers do to help retain their clients?
1. Issues with the quality of advice and relationship can be addressed by better understanding each client and their specific financial needs and goals.
Clients don’t want an adviser who makes them feel like a number, so take the time to show that you see them as individuals by digging into their goals. But the work doesn’t end there. Clients will struggle to understand the value of your advice if they cannot see how it connects to their goals, so ensure ongoing conversations about their financial plans are tied back to their personal goals.
2. Issues with the cost of services, comfort handling finances, and communication can be addressed by effectively communicating your value.
Clients may need clear communication about what you do to meet their personal needs to fully understand your role as a financial adviser. Research from our team shows clients and advisers tend to have a mismatch between what they think the value of a financial adviser is. You should communicate to clients not only how you provide the value they are looking for in an adviser but also provide value they may not even be aware of.
3. Issues with return performance can be addressed by setting expectations for the relationship early on.
Many clients struggle to take the long view with investing and get caught up with short term returns. With both old and new clients, it is important to establish the expectation that investing should be treated in a long-term manner and decisions should be made with years and decades in clients’ mind, not with short-term periods such as quarters. If you are consistently finding a client is only interested in immediate returns, remember it is perfectly alright to consider releasing them as a client so that their short-term goals can be met elsewhere.
Samantha Lamas, Senior Behavioural Researcher and Danielle Labotka, Behavioural Scientist both are from Morningstar and based in the USA .
