How to avoid being fired by your clients

A Morningstar report shows most clients want to feel connected to their advisor beyond just their investment account.

It turns out that the relationships that financial advisors have with their clients are pretty sticky, and what makes a good relationship might surprise some advisors.

A new report from Morningstar, which includes findings from three different investor surveys, found that just 6% of clients felt they needed to part ways with their financial advisor.

As any veteran financial advisor can attest, client satisfaction can come in all shapes and sizes, and even though financial planning is essentially built on a foundation of investing and money, the Morningstar research shows that investment performance isn’t the top reason clients fire advisors.

The research, which is based on feedback from 3,003 investors, including 184 who fired their advisor at one point, found the most common reason advisors were fired had to do with the quality of financial advice and services.

Nearly a third of investors cited that as the top reason for cutting ties or thinking about cutting ties with their advisor, while 21% cited the quality of the relationship. Add to that the 9% who cited the quality of communication as an issue, and the message gets clearer: Clients want more of the softer side of financial planning.

“A lot of these categories have a very emotional grounding,” said Samantha Lamas, senior behavioral researcher at Morningstar, who co-authored the report with Danielle Labotka.

Lamas cites three lessons advisors can learn from the report to help avoid getting fired.

“Focus on the person side of personal finance, communicate values and set expectations early on,” she said. “The relationship side is so important.”

Some of the feedback from disgruntled clients included complaints about their advisor not understanding their needs, using cookie-cutter solutions and just pushing buttons.

“Clients are looking for more than just the finance stuff; they want to work with a person,” Lamas said. “If they’re just looking for returns, they can probably get that from a robo-advisor.”

Danielle Labotka, behavioral scientist at Morningstar, said even though the portion of clients who fire their advisors is low, the percentage of dissatisfied clients could be much larger and potentially devastating to an advisory practice.

“We think a lot of these issues could be the same from people who haven’t fired their advisor and are just becoming disengaged,” she said.

The disengaged client, Labotka explained, might gradually move money away from the advisor and would be less likely to give positive referrals.

“A big part of the takeaway is we think it’s important for advisors to shift their mindset from assuming clients leave due to things like market performance that is out of their control and to start thinking about the actions you can take,” she said. “You can’t prevent bad returns, but you can sit down with clients and talk about how to define success.”

In the report’s takeaways, the authors say advisors can address the two biggest client issues related to the quality of the advice and the quality of the relationship by emphasizing the relationship. That means real conversations about goals and expectations that are separate from investment performance.

To address dissatisfaction related to cost of service and financial matters, the authors advise communicating value by walking clients through the investment process, reaching out proactively and keeping them informed.

When it comes to dissatisfaction with investment performance, the key is setting expectations early and often. This means acting as a coach and teacher, and helping clients focus on their long-term goals.

“A lot of the activities are geared toward helping advisors connect clients to the values advisors provide beyond a robo-advisor,” Labotka said. “A lot of clients don’t know what they don’t know, and a lot of this is about taking a step back and not just assuming clients are on the same page with the advisor.”