A classic song warns breaking up is hard to do.
Difficult it may be, but calling it quits with your financial adviser may be one of the smartest decisions you can make. But it shouldnâ€™t be a knee-jerk decision.
â€śSome investors actually change financial advisers too often,â€ť said Michael Farr of Farr, Miller and Washington, a Washington, D.C., investment management firm. â€śYou need a solid reason.â€ť
Here are some reasons to keep in your back pocket, just in case.
1. Transparency and clarity
If your investment adviser is unable or unwilling to walk you through where your money should be and why, press the issue â€” or, failing that, the eject button.
â€śFinancial topics can be difficult to wrap your head around at times. That's a big reason why you get a financial adviser, because who wants to spend their time researching net expense ratios, standard deviations or the amortization schedule on a loan?â€ť said Andrew McFadden, a Clovis, California, certified financial planner. â€śA good adviser will take the time to break things down to a simple level, so that at least you understand why they've made a recommendation and what the benefit for you is.â€ť
The same holds true with how a planner is compensated â€” something every investor should fully understand, no matter how complicated.
â€śIt's true there are a number of ways advisers generate revenue and bill their clients,â€ť said Taylor Schulte, CEO of Define Financial, a San Diego financial planning concern. â€śBut the financial planner should be able to clearly define his or her methodology to avoid any surprises as the relationship continues to evolve.â€ť
2. Change in direction
At the outset of a client/adviser partnership, itâ€™s critical to make sure that both are on the same page in terms of investment philosophy â€” conservative, aggressive or a focus on certain products, such as mutual funds.
â€śOnce an adviser begins to deviate from the discipline youâ€™ve agreed on, thatâ€™s a red flag,â€ť said Farr. â€śYou should keep an eye out for those sorts of changes when the market is underperforming â€” they may be trying to play catch up.â€ť
In particular, take note of instances where an adviser is especially forceful in recommending products with which youâ€™re not familiar.
â€śIf your adviser is pushing you to invest in asset classes you haven't heard of before and cannot explain them in simple language, you should be very careful,â€ť said Chris Nicholson of FutureAdvisor, an online investment manager.
The cost of investing should be of concern to any reputable planner or adviser. If a high fee mutual fund is being recommended, make sure your adviser can explain how those expenses translate to out-of-pocket costs and why a less expensive option isnâ€™t just as suitable. (For more on mutual fund costs, hereâ€™s a handy primer.)
3. Bad vibe
Any relationship with a professional â€” be it a doctor, attorney or financial adviser â€” should be grounded in your confidence in their judgment and ability. A lack of trust can stem from a string of poor recommendations, but sometimes it is just an unnerving vibe.
â€śI can't tell you how many stories I have heard of clients that had a bad gut feeling about their adviser, but because they couldn't put their finger on just what it was that unsettled them, they stuck with them â€” only to find out later that their intuition was correct,â€ť said McFadden. â€śThat trust takes a little time to build, just like any relationship, but don't ignore the warning signs, even if it is just a feeling you have in the pit of your stomach.â€ť
4. Missing in action
An adviser who is chronically unavailable can also erode trust.
â€śWhether this means they seem to be ignoring you altogether, or just not responding to your requests or questions in a timely manner, you should consider finding a new planner,â€ť said McFadden.
The same holds true on the other side of the equation â€” when investors don't want to hear their advisers talk them out of an irrational or ill-timed financial decision.
â€śThe true value of an adviser is keeping you from doing something stupid at an emotional moment,â€ť said Farr.
5. Promising too much, too little
When considering an adviser, keep an ear out for promises that simply canâ€™t be kept, no matter how appealing. As Paul Ruedi of Ruedi Wealth Management in Champaign, Illinois, pointed out, no one can legitimately claim to time the markets or know for certain where the economy is headed.
â€śIf you hear any of these so called value propositions, run, do not walk,â€ť said Ruedi.
Additionally, listen carefully to what the adviser pledges to do. For instance, if you want a regular series of check-in phone calls from your adviser, you may not want to work with someone whose policy is quarterly contact via email.
6. Reasonable expectations
Lastly, donâ€™t hope for more than you can reasonably expect. As Farr noted, the very best adviser/client relationship is one where the financial pro is no more and no less than a trusted partner to whom the client listens.
â€śFor the majority of people, all they want and need is thoughtful, honest and straightforward advice,â€ť he said.