It’s never too late to say bye to your financial advisor
It’s never too late to say bye to your financial advisor
Benjamin Levisohn
WHEN your assets are rising along with the stock market, it’s easy enough to ignore nagging unhappiness with a financial advisor. But in periods of financial stress — like now — simmering issues tend to come to the fore, whether they’re tied to an advisor’s performance or personality. Breaking up, however, can be hard to do.
Griping about advisors inevitably rises when a market bubble bursts, as it did in 2000. Back then, complaints to the National Association of Securities Dealers, now the Financial Industry Regulatory Authority, peaked at 6,584 annual complaints. After calming down for a few years they’ve been trending up, with a 10.4% jump in 2006, the latest figures available. The number of advisors has also grown. The ranks of brokerage-affiliated advisors swelled 38% from 2005 to 2007, to 9,477.
Now, the turmoil in the market has more jittery clients checking in with these advisors and asking tough questions. Many wind up reassured, but sometimes a response — or lack thereof — shows it’s time to move on. Cutting ties can be tricky, though: Fear, manipulation, and legal hassles can make it difficult to break free.
James Gottfurcht, a Los Angeles psychologist who specialises in clients with financial issues, can attest to that. He worked with one couple who stayed with their advisor for seven years even though they never received information quantifying their returns. During that time they were reassured by the fact that their investments increased enough for them to withdraw the cash they needed without falling below their original deposit. But only during couples therapy did they address the issue, which had caused the two to bicker about who should make the call to the advisor.
When the couple finally worked up the courage to ask about their account’s performance — the husband called — they didn’t get a good answer. The advisor made excuses, saying the returns were too difficult to compute because of all the withdrawals. Many investors would have yanked their money then and there. But the couple couldn’t bring themselves to do it, and for six months they kept asking, until he finally produced a number. How’d they do? Far worse than the markets. The experience of Gottfurcht’s patients shows how fraught a relationship with an advisor can be. While the majority of advisors are responsible and ethical, the way we choose them is often shockingly lax. A recent McKinsey study shows that 25% of people rely on a referral from friends or family. Often, people assume a friend or relative has checked out an advisor thoroughly, which may not be the case.
To Peggy Redding, her advisor’s attempts to keep her onboard felt like emotional blackmail. A month after the 74-year-old Redding’s husband died, she received a visit from his advisor to offer reassurance about her financial picture. Still, she worried. She was responsible for three different accounts — her own, the family’s joint account, and her husband’s. “I was afraid things were slipping away from me,” she says. So, she decided to consolidate the accounts with a new advisor. When she told her husband’s old firm, they pressured her to stay. They said they “didn’t like being fired.” They reminded her about their visit after her husband’s death. “They told me it wasn’t what my husband would have wanted,” Redding said, “not the kind of thing he would have done at all.” After that, her new advisor made all the calls.
Blame game
How an advisor reacts to being challenged can be telling. For Sharon DeBlasio, 46, her queries touched off a blame game. She noticed that the returns on portfolios she had managed for her husband’s Hamilton Square medical practice seemed much too low compared with the overall market. DeBlasio, afraid of confronting her advisor, had her accountant take a look. He pointed to one investment — a series of municipal bonds purchased on margin at interest rates higher than the bonds paid. What should have been a relatively safe, tax-free investment was costing her money. When confronted, DeBlasio’s advisor blamed the accountant for the situation. Then the advisor blamed DeBlasio for not looking closely enough at her own records and realising the investment made no sense. DeBlasio decided it really didn’t matter who created the problem. It just needed to be fixed. She hired a new money manager with whom she is far more comfortable. She only regrets that she and her husband didn’t make the move sooner. “In medicine, we can’t make mistakes or poor decisions,” she says. “And you expect your advisor to be professional, too.”
Sometimes it is the client, and not the advisor, who’s the problem. Gottfurcht, the financial psychologist, recalls one client who used four advisors in one year — a record in his book. The investor’s unrealistic expectations ultimately proved self-defeating. “He left the first three,” Gottfurcht says. “The last one fired him.”
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