Has your financial advisor informed you to find a different financial advisor? It does not happen that often, but when it does there are a number of things investors should be aware of.
First, there are two general reasons why an advisor or advisory firm would terminate a relationship with a client. First, and most often is the advisor or their firm has changed in some way. Second, and far less frequent is something the investor has done motivated the advisor to terminate the relationship.
In the first case, what happens often is the firms minimum account size has gone up and the firm no longer deals with clients of your size. The firm may suggest another firm that focuses on clients your size, or may send you a list of firms they think are worthwhile to review or may even send you to an industry association that lists advisors.
While often the firm’s decision to not deal with small accounts is one that is based purely on economics, this is not always the case. More and more advisory firms are deeply evaluating their firm’s profitability combined with their service levels and have come to the conclusion that they cannot serve well certain types of clients. The decision can be heavily weighted to performing a level of service that the firm’s management is comfortable with and do not feel good about not giving enough time to certain sized accounts.
Sometimes the decision can be one of operational efficiency. For example, if you become the only client of theirs in a state, it can be a significant regulatory burden to maintain you as a client.
In terms of recourse, it normally does not make sense to even attempt to stay with a firm that has asked you to leave. One exception could be that you indeed have assets elsewhere, in the case of a rising minimum, and decide to move assets to that advisor to keep the relationship. Almost always, the notion of bring more assets to your advisor is a conversation you’ve been having with the advisor and therefore not a surprise.
You Change/Your Conduct
In the second, more rare case, an advisor or advisory firm will ask a client to leave based on something you have done. Of course, if your assets have dropped, it’s the opposite of the above case of account minimums. However, there are cases where the investor has done something or even not done something that has motivated the advisor to fire you as a client.
The list of investor conduct driving a decision to be asked to leave can be quite long, but in general, its when the investor continues to ignore the advice of the advisor to the detriment of the investor themselves. The advisor not only has grown uncomfortable with the lack of client adoption of the advice, but likely sees the relationship as a potential risk to the firm in some way.
To be clear, it is quite common for some of the advice of an advisor to not be acted upon. In fact, nearly all advisors will share that nearly all their clients will ignore something they suggest. A “firing offense” usually is when a client ignores the majority of the advice given, or does something in complete opposition to the advisor sufficient to harm themselves.
If you receive a termination notice from your advisor “for cause”, it is a very good idea to try to have a candid conversation with your advisor as to why. The odds are that your advisor has your best interests at heart and what they have to say will be quite valuable. This feedback should be noted for any future advisor you work with should the firm still want to cut ties.
Most advisors have at least one or two clients they would like to fire for the reason of unfollowed advice, but firing a client is emotionally very difficult to do and most don’t pull the plug on self-sabotaging clients. It would be a good idea to ask your advisor at least annually if you are not acting upon something they have advised upon.
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