Why Clients Fire Their Financial Advisors
A new study by Spectrem Group shows that 58% of high-net-worth investors have switched financial advisors within their lifetime, and 23% have done so within the past five years.
Spectrem polled 3,070 affluent U.S. investors, of whom 1,015 had switched advisors. They ranged in age from millennials to those 69 years and older, and included mass affluent ($100,000 to $999,999), millionaire ($1 million to $4,999,999) and ultra-high-net-worth ($5 million to $25 million) investors.
The wealthiest participants in the study were most likely to have changed advisors in the last five years. Eleven percent of millennials had done so in the last 12 months.
Investors who had switched advisors gave many reasons for doing so, but three were predominant:
According to Spectrem, only 6% of affluent investors switched advisors because they did not like the firm their advisor was with, and 3% did so because the advisor’s firm had merged with another firm they did not like.
The study found that retired or semi-retired investors were likelier that those still working to switch advisors.
The same was the case for those who liked to self-educate, for example, by watching financial videos or reading investment-related articles, rather than discuss investments with an advisor.
Twenty-three percent of study participants who had switched advisors said they conducted weekly investment research, and 25% did so monthly. Those who had not switched advisors were less likely to conduct investment research weekly or monthly.
Investors who texted their advisors or contacted them using Twitter were more likely to have switched advisors, as were those who preferred frequent outreach from their advisor.
Sixty-five percent of study participants said they did not know their new advisor before engaging him or her, while 35% were acquainted with their new advisor beforehand. The study found that the likelihood of knowing their new financial advisor prior to engagement increased with age.
Forty percent of mass affluent and millionaire investors said they had found their new advisor through a referral from a friend or family member, while 35% of ultra-wealthy investors had used that method.
Spectrem said the study made clear that advisors had to proactively reach out to their clients. This was especially important for clients who educate themselves and follow the markets as they are more likely to change advisors than those who prefer to discuss issues with their advisors.
“This research offers key insights to providers about attracting and keeping investors,” Spectrem Group president George Walper Jr. said in a statement. “It underscores that investors are looking for proactive advisors who stay in contact with them in addition to offering new investment ideas and forward thinking.”