Why do clients fire their advisers?

Nobody likes to be dumped. The independent financial adviser community is no different. Aside from the usual discomfort of parting ways, termination of a client and IFA relationship comes with other adverse consequences.

Being fired is not a good thing for a financial adviser, as it results in lost business. Such a scenario can also manifest in the form of lost referrals and potential clients being discouraged by negative reviews. 

Before we break down why advisers get fired, we must ask: how common is this problem?

Morningstar’s behavioural research, conducted over three surveys to find out the main motivations for why clients fire advisers, finds only 184 people had ever fired their adviser. 

In other words, only 6 per cent of our sample ever felt the need to break an adviser relationship. So the good news is that clients’ retention of advisers is quite high, and firing is a relatively rare occurrence. 

The research shows that no matter how common or rare it is for clients to fire an adviser, it goes without saying that it remains in advisers’ best interest to avoid being fired

However, this masks a key reason why clients are reluctant to cease their relationship with their adviser. Many clients remain with their adviser in name only to prevent incurring perceived switching costs. Instead of terminating the relationship, they merely move assets out of the advisers’ practice. 

We did not address this kind of disengagement and instead looked at cases where there was a clear break.

The research shows that no matter how common or rare it is for clients to fire an adviser, it goes without saying that it remains in advisers’ best interest to avoid being fired. Not only will that maintain profitability, it also helps with retaining next-generation clients in an environment where DIY investing platforms are so widespread.

So why do clients fire their advisers?

More than cost and performance 

It may be expected that cost and performance would be the main reasons why investors would ditch their advisers. However, Morningstar’s research shows the top reasons for ditching advisers are much deeper than that, and financial reasons simply scratch the surface. 

Only 11 per cent of clients cited return performance-driven factors as a motivation for firing their advisers. 

We are not underestimating the importance of performance and fees, but other factors clearly play a bigger role in clients’ decision to fire an adviser. 

The following are the two most commonly cited reasons why a client may fire an adviser:

Quality of financial advice and services.