Is a client who fired their financial adviser a red flag?

What investment clients are seeking the next time around.

By Samantha Lamas, Senior Behavioural Researcher

Imagine meeting with a prospective client for the first time. After a bit of small talk with “Evie,” you realize she already has a solid understanding of financial topics and the role of a financial advisor. She also already has a decent plan in place and a considerable amount of assets.

The catch: Evie had a financial advisor in the past, but she fired them. (At this point in the conversation, you do not know what prompted the fire or any other details.)

Although some financial advisors might see Evie as no different from any other client, others might be hesitant to move forward. A financial advisor might assume that Evie has unrealistic expectations that no advisor can meet. Should you proceed with caution, or treat her like any other prospect?

The answer is: Neither is quite the right choice.

Clients who have fired a financial advisor aren’t inherently a red flag, but they do require a slightly different approach.

What Happens After a Client Fires Their Financial Advisor?

To move beyond these assumptions, we compared the actions and motivations of three categories of investors:

Switchers: Current advisor clients who have fired an advisor in the past.
Keepers: Current advisor clients who have never fired an advisor in the past.
Leavers: Former advisor clients who fired an advisor and never hired another.

In Evie’s case, she’s a potential Switcher.

Morningstar research finds that Switchers are rare, with only 27% of investors who have fired an advisor choosing to work with a new financial advisor. These clients typically don’t churn quickly through advisors—in our sample, Switchers, on average, fired their advisor after three years.

When we looked at why Switchers fired their financial advisor, the most common grievances were about the quality of advice, the quality of the relationship, and the cost of services. Switchers expected their previous financial advisor to provide worthwhile advice built upon a solid advisor-client relationship—in other words, the expectations of any client.

What switchers are looking for now

Interestingly, when it comes to their next relationship with a financial advisor, Switchers don’t simply carry their past frustrations over. We found that the reasons they hire a new advisor often differ from why they left the last one.

When looking at the hiring demands of Switchers compared with Keepers, we found that Switchers placed less importance on addressing a specific financial need. This makes sense given that they tend to be further along on their financial journeys and often have already addressed any urgent needs. Switchers also tend to place more importance on the quality of advice, probably because they can compare new advice options against prior experiences and existing plans.

At the same time, when looking at the other top hiring reasons of Switchers versus Keepers, there are many similarities. Like other clients, Switchers still hire an advisor for reasons about their discomfort handling financial issues on their own and their desire for behavioral coaching.

How can financial advisers best communicate with switchers?

Prospective clients like Evie shouldn’t be treated as a red flag, but they also shouldn’t be treated like someone entirely new to financial advice. Given their previous experiences, these investors have a stronger ability to evaluate advice and, in some cases, may have lingering skepticism.

Even so, just like most clients, they are looking for a financial advisor who delivers on the core elements of the advisory relationship, which include providing comfort when making financial decisions, engaging in behavioral coaching, and building a personal connection with clients.

For financial advisors, here are a few things to keep in mind when approaching conversations with Switchers based on these insights.

Acknowledge the past, but don’t anchor on it

Clients may bring up why they left their previous financial advisor. It’s important to listen to and validate their experience, but avoid dwelling on those specific grievances. Instead, transition to forward-looking questions like: “What would a great advisory relationship look like for you now?”

Reconstruct what “good” looks like

If the client is stuck on past experiences, help them shift into a more positive mindset by asking what their previous advisor did right. No matter how short this list is, it can still reveal what the client values and provide some direction on where to build moving forward.

Lead with how you think, not just what you do

Switchers are less likely to be hiring you for a single task. These investors will be evaluating the quality of your advice, which includes the quality of your reasoning, how personalized your recommendations are, and whether your advice improves on what they already have.

Clients who have fired an advisor aren’t an immediate red flag. Instead, they are informed consumers who need more than to check something off their to-do list. For advisors who can meet them at that level, they represent not a risk, but an opportunity.

Since its original publication, this piece may have been edited to reflect the regulatory requirements of regions outside of the country it was originally published in. This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds referred to in this report. © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 02 9276 4550.