If your only personal communication from your financial adviser is a yearly birthday card, it’s time to break up.
That’s the basic money-management relationship advice from Cody Garrett, a certified financial planner who is now focused on adviser education with his company, Measure Twice Financial.
An adviser who sends out perfunctory greetings like that might not even notice if you leave, especially if they’re at a major financial institution and you’re one of 250 clients on their roster, and they’re just managing your investments to collect a yearly fee of 1% of the assets under management.
Other signs it’s time to move on? The mere fact that you’re looking for reasons to break up might be the biggest reason to break up. It matters that you feel good about the person who is managing your life savings.
How you interact with your adviser and whether you are satisfied typically depends on the type of adviser and the kind of client-engagement agreement you have with them. So many people in the financial-services industry call themselves “advisers” that it’s hard for regular people to know what to expect. That can be the start of a major communication problem.
Who really is an adviser?
The kind of financial adviser most people want is somebody who looks at their whole financial picture — their hopes, dreams and possibilities — and sets them on a path to do the best they can with their assets to achieve their goals.
“A financial adviser knows your family and your worst nightmares. It’s a whole relationship,” says Pam Krueger, host of PBS’s “MoneyTrack” and founder of Wealthramp, which connects people with fee-only financial planners.
Unfortunately, this is not the type of adviser most people encounter.
“I hate putting adviser and broker in the same sentence, but until the day they stop letting brokers say they are advisers, we’re stuck with it,” Krueger says.
The vast majority of those professionals are really salespeople who work at brokerage firms or insurance companies and help you allocate your investments. “They’re not advisers. Their training is to sell you,” says Krueger.
So forgive people for getting confused and dissatisfied about how they feel about financial professionals, feelings that are consistently reflected in consumer surveys. A J.D. Power survey found that 40% of firms offered mostly transactional advice, and only 11% offered full-service holistic financial planning under a fiduciary standard — meaning they put the client’s best interest first. But holistic advice is what consumers say they want, and they report being very unhappy with the amount of money they are paying for advice that isn’t up to their expectations.
“The real trigger isn’t fees, it’s the quality of communication,” says Krueger. “If it’s bad, then you could be paying a really small fee and it’s just not doing it for you. You just get that feeling like, ‘The only time he calls is when he wants me to make an investment. I feel used.’”
When people come to Krueger to ask for help finding a new adviser, the first question she asks them is why. One couple she helped recently came in complaining about the fees they were paying at a major brokerage. “When they really peeled the onion back, they realized how much they were paying. They had no idea for a long time. And in the meantime, their broker-adviser had become so deeply entrenched in their family,” Krueger says. “That kept them from making a change for a long time. They were so freaked out about how he would react.”
But it turns out that the real problem wasn’t the fees, but that this broker had obscured information from them for so long, while becoming such a close family friend that he was in their daughter’s wedding party. Betrayal stings, so they decided to go a different way, and Krueger helped them script their exit to avoid conflict.
Are you A-list or B-list?
Investment performance is the other main area that people complain about, but Garrett says that’s also a misconception. “They think it’s about that, but it’s really about lack of communication,” he says. Usually, the people he talks to are dissatisfied because their broker has been making investment moves without explaining fully or asking for their opinion.
Customers can easily tell when they’re put on the back burner. “At big brokerage firms, where you’re just one out of 250 clients, they have A, B and C clients,” says Garrett. “If you have $100,000 and your broker has mostly $1 million-plus clients, they’re not going to care if you are there or not. They haven’t cared in a long time.”
You might get the same sort of brush-off from registered independent investment advisers, Garrett says. “With small accounts, they’re like great, one less client to worry about.” But if you’re paying them $10,000 or more a year in fees, they’ll call you if they start to sense you pulling away.
There is a third way, which is that fraction made up of fiduciary holistic planners — the CFPs and other designations that put the client first. Krueger vets all of the fee-only planners who join the Wealthramp network, and she’s proud of their record. “The advisers I work with have a 98% retention rate or greater. I won’t work with an adviser who has less than that,” she says. You shouldn’t, either.