5 Signs That It's Time To Fire Your Financial Planner

Just because an angry bear market is mauling your portfolio doesn’t necessarily mean that it’s time to fire your financial planner. But you may want to break out the axe at the sight of the following five warning signs…

  • Communication Breakdowns: Your financial planner hasn’t been fishing since May. If you suddenly getting the runaround even though your calls were returned when times were good, ask for an explanation.
  • Amazing New Strategies: What happened to that long-term plan that sounded so good two years ago? Managing the market might call for some tweaks and adjustments, but be wary if your advisor starts pitching a distinctly novel plan.
  • No Strategy At All: Your advisor should be able to explain how current performance fits in with your larger goals. “If the adviser doesn’t have a strategy they can articulate to you, you can pretty much guarantee that you’ll have poor results,” said David Twibell, president of wealth management for Colorado Capital Bank in Denver.
  • Lots Of Transactions: Is your advisor racking up commission by buying or selling stocks every day? Even in good times, costly rapid-fire transactions require an explanation.
  • New Office: If your planner hops firms, find out why. It may be for a nicer office with a plusher chair and sweeter salary, but it could also be a sign that clients at the old firm were dissatisfied.

Now may seem like the time to panic and stuff your mattress full of cash, but unless your financial planner gives you a specific reason to worry, stick with your long-term strategy.

5 signs you should fire your financial planner [AP]
(Photo: Getty)

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  1. homerjay says:

    Interesting- I JUST did this last month. I was with my guy for 7 years and thought I was doing okay. I started to notice a lack of communication. Then a new guy took over my account and I was highly unimpressed by his attitude.
    I finally decided that I’m just as capable of picking a few mutual funds as he is so I switched everything over to Schwab.

    Turns out it cost me $110 per account to close out the account. I have 4 IRA’s between my wife and me. On top of that the shitty funds he had me in had awful back-end loads so it cost me about $2500 to close them all. What a crock.

    If you’re just starting out and have a few minutes a month or more to pay attention to your savings, do it yourself.

  2. johnva says:

    @homerjay: This is very much true. No one is going to care more about your money and financial future than you. Especially if your “planner” has a vested financial interest in picking certain investments over others. A large number of so-called financial planners are little more than glorified salesmen who do very little more than your typical target-date retirement fund. I’m very wary of them, in general, and I think for good reason.

  3. ugly says:

    I just took on a new planner, but in favor of doing it myself rather than by firing an old one. For me the key was hedging my bets, so rather than being the only thinker behind my plan there’s also a professional.

    I think like any good financial plan, diversifying not only types of risk, but also the planners, can’t hurt. I tend to be overly conservative (Mostly money market funds, GICs etc.) which has served me well these last 2 years, but probably lost me thousands overall.

  4. laserjobs says:

    Most financial planners get paid though the backend. ALWAYS ASK IF WHAT THEY ARE MAKING FROM THE PRODUCTS THEY RECOMMEND. If they won’t tell you, run don’t walk!!!

    A good financial planner will make their money though hourly fees not backend commissions and they are very hard to find. A good clue to a straight up finaincial planner is one that will recommend indexing in ETFs like SPY.

  5. cmdrsass says:

    If your planner works on commission, they have *their* best interests at heart, not yours. It’s a clear conflict of interest. Always, always consult a fee-only planner. If you are not sure, ask. They are not hard to find – NAPFA is the National Association of Fee-Only Planners (www.napfa.org) and can point you to a qualified planner. For low net worth clients, they usually make their money on hourly fees. For high net worth clients, their pay is usually based on some small percentage of your assets under management.

  6. DeepFriar says:

    Make sure your financial planner also involves good wealth management practices (has good contacts for tax preparers and estate lawyers, usually involving referral kickbacks).

  7. @homerjay: Homer Jay, I’m sooooooo sad you didn’t say “Credit Union, people!”

    My credit union has financial planners on staff, salaried by the CU, who (by appointment) will sit down and work out a financial plan with you. And the CU doesn’t sell any of the investment products, unless you’re after a CD. It’s like a fee-only planner (which is what you should be using!), only the CU pays the fee!

  8. homerjay says:

    @Eyebrows McGee: Hah! Sorry. I reserve that exclusively for bank-talk.

    Realistically, though, what are you learning from these people that doesn’t boil down to “You need to save more?”

    There is SO much data out there to help you decide where to put your money and most of it is easy-to-understand form.

    There are tons of calculators available to help you determine how much to save (I’ll give you a hint- its more than you’re saving).

    Its not like 20 years ago where your financial institutions have all the information and you have access to none of it.

  9. redclear55 says:

    I wanted to add a note about the last point from the OP. Financial Advisors may leave their firm as a way to retire out of the business. They typically can get paid 1-2 times the value of their book up front in order to change brokerage houses. it is still left to be determined if the up-front costs are worth it to the broker-dealers.

    on a positive note… there are certain firms that do business better than others and so an advisor may get the opportunity to “move up” in the business which may benefit your portfolio by giving you better options. for example, some fee-based platforms are stronger than others. if the FA is looking to grow their business, they may migrate to a location which would better facilitate their business model.

  10. redclear55 says:

    @homerjay:

    This is an example of why you need to read your fund prospectuses. they explain all these costs up front and allow you the opportunity to bow out of the transaction if you do not feel comfortable. buyer beware.

    the IRA fees are typical of the industry and are just part of the game. if you plan to rollover your IRA to another firm, ask the new firm if they will reimburse your first year’s fee to offset the cost of coming over. this is common practice but is not always expected.

  11. redclear55 says:

    I will add one nugget to help achieve your financial goals: create an investment policy statement. this puts into writing what you define as risk and how you are comfortable with taking on risk. this is your long-term plan which should be reviewed 1-2 times a year with your financial planner. too many times i have seen advisors or individual investors chase performance and poorly managing their risk. and even more commonly, i have witnessed a disassociation what the advisor deems as risky versus how the client views it.

    put it in writing.

  12. SgtBeavis says:

    Ok, so we have five signs on when to fire a financial planner. Ok gotcha.

    How about an in depth article on how to actually find a GOOD financial planner.

    I’m out of debt and starting to rack up some cash. The only problem is that I hear so many damn scams out there that I’m to friggin scared to trust anyone with my money. I’m quite willing to do the due diligence but I’ve really got no idea where to start..

  13. vastrightwing says:

    Is your financial planner Merril Lynch?

  14. johnva says:

    @SgtBeavis: Here’s my advice: avoid financial planners, and take the time to actually inform yourself about the nitty-gritty details of investments. It’s a lot harder for someone to rip you off if you understand the details of what you’re investing in. There is a huge amount of information about this sort of thing readily available on the Internet or in books. IMO most people who are willing to put in the effort to learn are probably better off doing their investing themselves. It might be worthwhile to talk to someone about how much you need to save to accomplish your goals, etc but I don’t think I would ever let a “professional” do the actual picking of investments for me. There are too many scam artists out there, and even more people selling advice who don’t really know much more than I do about investing. And I’ve seen a study that concluded that financial planners actually do worse as far as investment performance than DIYers. So too often they’re not even doing very well at managing money, much less doing enough better to justify their exorbitant pay.

  15. homerjay says:

    @redclear55: NOW ya tells me.
    Reading the prospectus for all your funds is like reading the T’s & C’s for, well, anything. Its painful. But you’re right.
    Thing is, it wouldn’t really have mattered because he held these funds before I decided I wanted to leave him and I would have agreed to them at that point. Oh well.

  16. @homerjay: “Realistically, though, what are you learning from these people that doesn’t boil down to “You need to save more?””

    Having worked in support services in the investments department of a major bank (and therefore being pretty investment savvy) … I actually DO find it useful. Particularly when it’s usefulness that’s FREE.

    I think it’s helpful to sit down with someone who’s NOT emotionally involved with my money and go over it with them. Because of COURSE you’re emotionally invested in your investments, and if you’re married, that emotional investment goes up 10-fold because of differing priorities and attitudes about money.

    I provide the same service for some estate-planning clients who are reasonably financially savvy … a third-party with no personal stake who can look at the big picture. It’s surprising how often clients need to hear FROM ME, “Look, you’re just wasting money on this” or whatever. They know it, but they don’t move on it til someone says it.

  17. Apeweek says:

    A good investment professional is as hard to find as a good doctor, or a good mechanic. Unfortunately, the wrong choice here costs you a lot of money, and this is an area where you can’t even necessarily trust your friends’ recommendations (unless they really are financially savvy – most people aren’t.)

    As unusual as this may sound, I use computerized investment services. This is where a computer program picks buy and sell points for you in a completely emotionless fashion. To find the systems that work the best, there are review sites that track their performance (like timertrac.com )

    There also exist some free computerized investment systems, like sniper.at and tradewhen.com , if you’d just like to experiment with this idea.

  18. TecmoTech says:

    @johnva: Financial planning is not just investments. Seems like you’ve only worked with investment guys who call themselves financial planners.

    CFP’s work with all areas of your life, not must investments.

  19. Amiga_500 says:

    It is a waste of resources, though sometimes there are great coupons in phone books. What I hate is when they deliver phone books within a few days of Christmas, New Year or other major holiday WHEN I’M OUT OF TOWN, along with many of my neighbors! Lets just paint a sign that I’m not home and come rob my house.

  20. Amiga_500 says:

    Sorry posting in the wrong section. There were pictures of phone books on my screen when i hit Submit, Honest!

  21. johnva says:

    @TecmoTech: I didn’t mean to suggest that financial planners only do investment stuff, and I think that’s perfectly legitimate if people want advice about their overall plan. Although I do question how necessary professional advice is for most middle class people if you take the time to be informed about the range of different financial services that people use (401(k), IRA, insurance, mortgages, credit, etc). I stand by my statement that it’s perilous to get recommendations about specific investments from the majority of them.

  22. redclear55 says:

    @SgtBeavis: in the financial services business, referrals are the best resource for getting new clients. gone are the days of cold-calling for new clients. your best resource is to ask people you trust and respect to see who manages their money.

    we should probably discuss the various categories of broker/dealers that exist to support people in making financial service transactions. anyone who has opened a Series 7 book should be familiar with the concept of a full service brokerage firm vs. a discount brokerage firm. Schwab, E-trade, etc provides basic services where larger firms like Merrill, Morgan or Smith Barney provide more extensive offerings. the more you pay, the more you should get.

  23. redclear55 says:

    @Apeweek: make sure you fully understand how the software was created because EVERY decision is based upon some undue influence. the assumptions for the software to buy or sell is based upon someone’s perspective on investing in the market. one could argue if its truly possible to eliminate behavioral economics out of your portfolio.

    its more important to be invested in the market. trying to time the peaks and valleys is nearly impossible. so you insulate your portfolio through diversification. what people tend to forget is to trim back your winners and put that money into your relative losers. this is the basic concept for contrarian investing.

  24. redclear55 says:

    @johnva: I would argue that you only hear about the “bad apples” when it comes to financial advisors. if you hear about someone getting huge gains in their portfolio is most likely assuming a lot of unnecessary risk. and most likely you will lose when you play those odds. how many times do you hear someone say “my advisor has been giving me average to just-above average returns over the past few years”.

    i hear the baseball analogy a lot and it seems to make some sense to me. you want an advisor who aims at hitting singles and doubles and is not trying to swing for the fences every time up to bat. obviously the advisors who hit home runs are going to get more press (on the positive end of the spectrum), but most likely their batting average (which is a real financial statistic!) is a lot lower than someone who is getting on base more often by hitting doubles and singles.

    the end-game is lowering portfolio risk and increasing consistency of returns. i would argue that most people do not know how to appropriately manage a portfolio in that regard. financial services is a profitable sector for a reason.

  25. Apeweek says:

    @redclear55:

    You may think that “trying to time the peaks and valleys is nearly impossible”, but that isn’t the case for a computer program. In fact, about 50% of stock market trades are now called by computer (according to Tradewhen.com ) The oft-repeated common wisdom that “you can’t time the market” is simply designed to keep the masses away from something that does indeed work (with the aid of a computer.)

    Review sites like timertrac.com exist to independently measure the return of computer stock timing systems, and have found that quite a large number of them do work, quite well, in fact.