What advisers learn from clients who leave other firms

A 2023 Morningstar study challenged one of the biggest assumptions in the financial-advisory profession.

Contrary to conventional wisdom, clients rarely fire their adviser because of investment performance. Instead, the most common reasons were the quality of financial advice and services (32% of responses) and the quality of the adviser relationship (21%). Cost ranked third, while investment returns accounted for just 11% of responses.

Those findings confirmed what many advisers had suspected for years. But they also raise another question. What do advisers who actually inherit those clients hear after the transition?

I asked several advisers whose practices have grown largely through referrals and clients leaving other firms. While each adviser had a different perspective, their answers revealed remarkably consistent themes.

Clients Don’t Leave Because of Performance

Every adviser I spoke with made essentially the same observation. Poor investment returns are rarely the catalyst. Instead, clients gradually lose confidence in the relationship.

As Marshall Rathmell, certified financial planner, certified public accountant, personal finance specialist, and managing member of BCR Wealth Strategies, put it: “Most new clients don’t come to us because they’re unhappy with investment performance. They come because they’re looking for a more proactive and attentive relationship … People are increasingly looking for peace of mind, not just portfolio management.”

That echoes Morningstar’s conclusion that relationship quality matters more than returns for most departing clients.

Communication Isn’t a Courtesy, It’s the Product

The most common theme I heard was communication. Kathleen Kenealy, CFP, certified private wealth adviser, and founder of Katapult Financial Planning, says new clients often describe feeling as though they were managing the adviser relationship themselves. “They rarely heard from their adviser proactively; calls and emails went unanswered, or they felt like they were managing the relationship instead of the other way around.”

Morningstar reached a similar conclusion, noting that many clients assume that if they haven’t heard from their advieor, nothing is being done on their behalf. Advisers may be working diligently behind the scenes—but if clients don’t see that work, they often don’t perceive the value.

Clients Want Advice That Connects the Dots

Investment management has increasingly become a commodity. Clients expect more financial planning. Jared Weinerman, chartered financial consultant, behavioral financial adviser, partner at Impact Financial Planning, says clients often arrive because they have never experienced true comprehensive planning. “Planning that coordinates investments, retirement, taxes, estate planning, insurance, education needs, and cash flow analysis creates a deeper understanding of the full picture and helps to solidify relationships throughout the process.”

In other words, clients aren’t necessarily looking for more sophisticated investments.

They’re looking for an adviser who understands how every financial decision affects every other one.

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.