A recent study by Vanguard and SpectremGroup provides insights into why investors leave their advisors.

The study polled 3,000 investors with $100,000 to $25 million in assets and asked them to rank the primary causes for leaving their financial advisors. Here are the results from the most important to the least important:

  1. Not returning phone calls in a timely manner
  2. Not providing good ideas and advice
  3. Not being proactive in contacting me
  4. Not returning emails in a timely manner
  5. Long-term (more than one year) losses to my portfolio
  6. My advisor changed firms
  7. Short-term losses (less than one year) to my portfolio

Communication is Key

Most surprising from the report was that portfolio performance came in near the bottom of the list. Communication topped the list and it’s clear that investors expect prompt follow up when they have questions or concerns about their portfolio.

The study revealed that investors expect their advisors to return phone calls or email within one day. It’s clear that timely communication is equated with good communication.

The best advisors make their clients feel comfortable about sharing their ideas and expectations regarding their financial future.

Getting their clients to open up about their needs and listening to those needs is key to providing the client with good investment ideas and advice.

The study showed that Ultra High Net Worth (UHNW) clients overwhelmingly prefer that their advisor initiate contact with them. Most UHNW clients expect to be contacted monthly or quarterly.

Understanding Risk Tolerance

It’s also important for a financial advisor to understand their clients tolerance for risk, as this is often where trouble occurs in the relationship.

Investors expect their advisors to have answers when the market takes a down-turn, and if the advisor has properly communicated the investors portfolio risk when the investments were made, they can remind their client why certain investment decisions were made.

Advisors often need to understand how to gauge their clients tolerance for risk.

The best advisors are listeners who are able to gauge their clients tolerance for risk by asking questions that help them understand their clients personality.

Some clients may say that their most important financial goals are high returns on their investments, but after gauging their intolerance for risk a good advisor will lead them to more secure investments that protect them during market downturns. 

The Bottom Line

Clients are more concerned with communication than portfolio performance. They expect their advisors to listen to them and make investments that work well with their tolerance for risk.

If this is done well, and the market takes a downturn, the advisor can more easily communicate why investment decisions were made.

As long as that communication comes quickly and proactively most investors will remain happy with their advisors assistance.