As a financial advisor, I tend to believe our largest competition is people “doing it themselves” – if we can simply prevent them from making some of the same common mistakes investors would make if left to their own devices, we can add significant value to their lives.
As such, I have taken a relatively civil attitude towards other financial advisors. I assumed that even if other advisors do things differently than we do at Ruedi Wealth, they would at least do better than a client would have done themselves.
The sad truth is, financial advisors like me often inherit clients who have been let down by a past advisor – and are now seeking someone to pick up the pieces. There are a handful of reasons why:
Didn’t Build a Financial Plan
People used to think the job of a financial advisor was to present them with the right investment opportunities – picking the right stocks or building the perfect portfolio of mutual funds. As more research emerged on the folly of active management, advisors learned their value was not in providing investment portfolios, but in building financial plans designed to achieve client goals.
Read more: What Does a Financial Planner Do?
Everyone has a purpose for their money, and their finances should be managed according to that purpose. It is no surprise then, that one of the most common reasons people walk through our doors is that their previous advisor simply invested their money and never made a plan that showed how those investments were going to help them achieve their goals.
You should not pay a financial advisor just for an investment portfolio, you should pay for their expert advice and ability to incorporate all the moving parts of your financial life into one comprehensive financial plan.
In the very worst cases, the expert advice people pay for results in an investment solution that more or less blows up in their face.
Not all advisors are created equal – as with any profession there is a range of options with varying levels of quality. Though I’d like to believe all advisors understand things like inflation and concentration risk (putting all your money in one investment) enough to keep their clients out of trouble, that is often not the case.
Sadly, some advisors either act as enablers or downright saboteurs of people’s financial plans. When those people fill me in on the details or provide me with account statements to show the damage, my response is always an exasperated “how could a financial advisor let this happen!”
Though this is an unfortunate situation to be in, blaming the past advisor or trying to figure out what went wrong is not going to help you. It is more important to find a way to accept what has happened and create a plan for moving forward.
Lack of Communication
This ties in with the first two I mentioned, because if a financial advisor just arbitrarily invested your portfolio without creating a financial plan or provided you with an investment strategy that cost you dearly, you aren’t likely to get many updates from him or her on how things are going.
Though most people don’t want to hear from their financial advisor every week, an advisor should make a conscious effort to keep you in the loop and hear any feedback you may have. Years without communication from a financial advisor is a justified cause for concern.
Though the financial advice industry has come a long way as far as removing financial conflicts of interest, sometimes a financial advisor is compensated in a way that could result in conflicted advice.
People often come to us because they are concerned they received certain investment recommendations because they resulted in their advisor earning a sales commission. More often than not, their concerns are justified.
Felt More Comfortable With Someone Else
There are a lot of intangibles in a relationship with a financial planner that either provide you with an overall feeling of comfort, or they don’t.
One of the most common reasons people switch financial advisors is simply that they were more comfortable talking to the new financial advisor about their issues, and more confident about the advice they were being given.
This could be based on nothing more than subconscious impressions or a gut feeling, but it is real nonetheless. Financial planning is very personal, and you want someone that makes you feel comfortable to be 100% transparent about your financial life.
Seeking a Specialist
It is often the case that a financial advisor can take care of the basics of a person’s finances for decades before their financial situation evolves and requires more specific expertise instead of general knowledge.
For example, Ruedi Wealth specializes in retirement planning, and it is very often the case that good advisors who have provided great advice for people throughout their working years lack the expertise to transition someone into retirement and ensure they maintain their standard of living.
Naturally, when people start wrestling with decisions like when to claim social security and how to withdraw from their investment portfolio, they feel more confident in the hands of someone who specializes in helping with those particular decisions.
The Importance of Moving Forward
Clients who are seeking to switch financial advisors are all similar; they feel they have been abused or let down in one way or another by a past advisor. This gives them the desire to seek the advice of somebody else, but also makes it hard to trust a new advisor.
I have to emphasize the importance of letting go of the past so you can focus on creating the best possible plan of action moving forward. Though some mistakes can’t be undone, if you find the right advisor for you, trust will naturally be established over time and ultimately become the foundation for a positive relationship that lasts for decades.
Paul R. Ruedi, CFP® is a financial advisor at Ruedi Wealth Management in Plano, Texas.
Paul has been cited in news publications including The New York Times, Dallas Morning News, Forbes, Inc.com, Business Insider, US News and World Report, GoBankingRates, The Street, and NerdWallet. He also writes articles that have been featured in CNBC, Investopedia, Yahoo Finance, Nasdaq, and MSN Money. He was named one of Investopedia's Top 100 Most Influential Financial Advisors in 2018.