Figuring out when to switch investment advisors is one of the most difficult decisions an investor can face. But sometimes it is necessary. Sometimes an advisor is just not a good fit for a particular investor. If you are thinking about switching advisors, use this article as a guideline for issues to consider and how to address them.

Here are some of the common concerns we hear from unhappy investors:

Issue #1:  I’m not happy with my advisor, but I don’t know where to look for someone that’s a better fit.

First, dissatisfied investors need to identify exactly what they are unhappy with and what services are most important to them. This helps in searching for a new advisor who has the desired qualities or offer the needed services.

Here are a few items to look at when interviewing new advisors:

  • Are they fee-based or commission-based?
  • Are they independent or a subsidiary of a larger firm?
  • What is their track record? What is their firm’s track record?
  • What continuing education has the prospective advisor done to further his or her career, such as earning professional designations like CFP, CFA and ChFC?

Issue  #2:  I am unhappy with my portfolio’s performance, but hasn’t everyone done poorly in the markets recently? Should I be concerned?

Go macro, then micro.

First, take a macro look at how your portfolio has done versus the overall markets, such as the S&P 500. Have you kept up?  Understand that this may or may not be a good litmus test, because a well-diversified portfolio has many more components than the S&P 500. This is merely a starting point for discussion.

Second, ask if the prospective advisor to show you a comparison of your portfolio’s individual components versus their relative benchmarks. This will give you a micro view of how your portfolio has done against actual benchmarks and broad benchmarks like the S&P 500.

Next, are they keeping up with your individual Required Rate of Return (RRR)?  Everyone has some sort of Required Rate of Return. This is an investment advisor’s target rate of return for each client, based on that client’s needs.  Markets will fluctuate, but how has the advisor done over the long term in achieving this goal for you?

An important point here is that if your advisor designed a safer portfolio, for example, to achieve a long term return of only 5%, then it would be reasonable to be dissatisfied if you didn’t have annual returns of 15%. It is important that the advisor and client have clear communication on what the objectives and expectations of the portfolio are, and not simply a vague objective of making money.

All clients should have an idea of their Required Rate of Return, as it is the road map of how to get from where they are currently to where they want to be in the future. An RRR analysis includes such things as a client’s available retirement funds, what they are planning to save, an inflationary rate, taxes, expenses, advisor fees, etc. A lot of time can be spent discussing a client’s RRR but, for the sake of keeping this article brief, make sure you have an in-depth discussion with your advisor about calculating this.

Issue #3:  I am unhappy with the service I receive from my current advisor.

Be sure to clearly define all of the things you are not happy with from a service standpoint, for example, frequency of contact, reporting, response to messages, etc.

Here are a few thoughts to consider when evaluating your current advisor relationship:

  • How well do they communicate and explain what is going on in your portfolio?
  • How well do they communicate how your portfolio is doing compared to the rest of the markets?
  • When the markets go bad, does your advisor go missing, give you the simple “hang in there, it will get better” line, or give you a real response of what they are looking for and when will they make changes, if at all?

Find out what their service model is BEFORE you engage with a new advisor.  Ask how often they communicate with calls, emails and face-to-face meetings. This will allow you to have a baseline of what to expect from this advisor moving forward, and more importantly, you can hold them accountable if they do not meet the promised level of service.

Issue #4:  Be assertive when meeting with prospective advisors. Bring along a list of your questions, thoughts and concerns to discuss.

This is a big deal if you find yourself in the middle of meeting a potential advisor and you can’t remember the 101 questions you had for the advisor beforehand. Also, writing things down will help to organize your thoughts and will make sure you can compare apples to apples when you interview several advisors.

  • Ask for referrals. Even though advisors will give you their best clients as referrals, it is good to hear from a client’s perspective how this advisor is taking care of their needs.
  • Check the advisor’s background on the SEC website and their CRD number for any complaints or disciplinary actions against them.

By following these tips, you will be able to find an advisor that meets your individual needs and financial goals. Good luck!