FA Playbook

When — and why — to leave your financial advisor

Deborah Nason, special to CNBC.com

Are your clients thinking about leaving? Will an era of muted returns lead even more financial advisors' clients to jump ship?

A 2015 study by Spectrem Group found that more than 60 percent of high- and ultrahigh-net-worth respondents had switched advisors over their lifetimes. The percentage was 51 percent for the less-wealthy "mass affluent." But are the numbers of dissatisfied clients even higher than this?

Inertia will keep some clients from moving, said Edward J. Kohlhepp Sr., owner and president of Kohlhepp Investment Advisors.

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"Sometimes they become friends with the advisor and feel, 'I can't leave; I see him socially,'" he said. "They don't want to hurt the advisor's feelings.

"They'll also think: 'Where am I going to go? I don't want to spend the time looking for an advisor again.'"

For clients considering a change, what warning signs should they look for?

According to the Spectrem study, performance (as opposed to the overall stock market) was one of the three top reasons clients switched advisors, along with "the advisor was not proactive in contacting me" and "did not provide me with good ideas and advice."

Performance, communication

"If judging performance only, clients need to give an advisor three to five years minimum, and realistically, five-plus is probably better," said Ryan Fuchs, a certified financial planner with Ifrah Financial Services. "It may take several years before you can truly see how an investment strategy will work. Ideally, you want to see how they perform during both bull and bear markets," he added.

Others suggest not waiting that long.

"If you're paying a management fee and only receiving investment advice but not consistently beating your appropriate benchmark, it's time to head for the door," said Evan T. Beach, CFP and wealth manager with Campbell Wealth Management.

"You either have results or reasons," he added. "You just don't want those reasons to turn into constant excuses. "If this happens for more than a year, head for the door."

Beach said the most important factor is trust. "If you're not comfortable picking up the phone to call your advisor to talk about your plan, your investments or your life, it's time to find someone new," he said.

For his part, Kohlhepp of Kohlhepp Investment Advisors cautions investors to "be aware if there's a constant switching going on within your portfolio and the advisor is not following a strategy consistently."

Failing to communicate advisor value can cause attrition, he added. "Clients often leave when they don't want to pay fees, because they don't understand what they're paying for or when they want to avoid all risk and put their money in the bank," Kohlhepp said.

Fuchs at Ifrah Financial Services offers a few more warning signs:

  • If you ask questions about fees and your advisor is not willing or able to explain them clearly and in writing.
  • If you do not get timely responses from your advisor or she/he is very difficult to get hold of.
  • If they do not provide an investment policy statement at the beginning of the relationship that lays out the expectations of asset allocation that you've talked about with them.
  • If you do not receive a clear contract on what you can expect from them and what they should expect from you.

Unarticulated expectations

Determining and meeting client expectations is key to retention, said Michael Krol, CFP and chief service officer of Waldron Private Wealth.

"Retention starts with spending a lot of time up front, and we request feedback on client expectations on an ongoing basis," he said.

New clients at Krol's firm are asked to imagine the future, three years hence. "What should have happened financially and otherwise for you to consider our relationship a success?" they are asked. Another query asks for the one thing Waldron Private Wealth is not doing that it should be doing. That question, asked after every major client interaction, may be put to a client directly by his or her advisor via a survey form or by firm executives reaching out to clients later.

Questions for uncovering client expectations

Waldron Private Wealth puts these questions to clients several times a year:

  • How satisfied are you with the relationship you have with [our firm]?
  • How satisfied are you with your [advisor's] ability to answer your questions?
  • How satisfied are you with the overall service you receive from your [advisory] team?
  • How likely is it that you would recommend [our firm] to a friend or colleague?
  • Do you have any additional feedback that you would like to share?

Sometimes you just need to try someone out, said Fuchs with Ifrah Financial Services.

"Until you've worked with a planner, you honestly cannot know exactly what you want," he said. "You can talk to others who have worked with planners and get their thoughts on what they like — and don't — and you can try to figure out what you think you will like and won't.

"But unfortunately, as is the case with many things," Fuchs added, "experience is the best way to figure things out."

— By Deborah Nason, special to CNBC.com