How to Break Up with Your Financial Advisor: A Guide for Oil & Gas Professionals - Ep. 81

The high retention, low trust paradox in the financial advisory industry raises important questions about the relationship between clients and their advisors.

Despite studies showing that a significant portion of individuals have low levels of trust in financial advisors, the retention rates of clients with their advisors remain remarkably high.

One possible explanation for this is the high cost of switching advisors.

While the monetary cost may not be significant, the relational tension and awkwardness associated with breaking up with an advisor can be a deterrent for many clients. This can lead to clients staying with their advisors even if they have doubts about the quality of service they are receiving. The fear of confrontation or discomfort in ending a professional relationship may outweigh the perceived benefits of finding a new advisor.

Another factor is the lack of awareness or knowledge about what constitutes good financial advice.

Many clients may not fully understand the role of a financial advisor or the services they should be receiving. This lack of clarity can make it difficult for clients to assess whether their advisor is meeting their needs effectively. Additionally, the complexity of financial planning and investment management may create a sense of dependence on the advisor, leading clients to stay with them out of convenience or inertia.

Ideally, both clients and advisors need to prioritize open communication, transparency, and education.

Clients should feel empowered to ask questions, voice their concerns, and seek out advisors who align with their values and goals. Advisors, in turn, should strive to provide clear and honest communication, educate clients about their services, and demonstrate their commitment to acting in the best interests of their clients.

By fostering a culture of trust, transparency, and open communication, the financial advisory industry can work towards bridging the gap between high retention rates and low trust levels.

Clients should feel confident in their advisor's ability to help them achieve their financial goals, and advisors should prioritize building strong, mutually beneficial relationships with their clients.

Relational proximity influences financial decisions.

Relational proximity plays a significant role in influencing financial decisions within the advisory industry. As discussed in the podcast, many individuals may choose an advisor based on relational equity rather than technical competence. This means that the relationship between the client and advisor is often built on trust, communication, and a sense of closeness rather than solely on the quality of financial advice provided.

Firstly, clients may be hesitant to switch advisors even if they are dissatisfied with the services provided. This could be due to a sense of loyalty or attachment to their current advisor, making it difficult for them to consider making a change. Additionally, clients may feel uncomfortable having difficult conversations with their advisor about their dissatisfaction, leading them to maintain the status quo rather than seeking out a better fit.

On the other hand, advisors may also struggle with addressing issues related to relational proximity. They may be reluctant to admit when they have made a mistake or when their advice has not been effective, leading to a lack of transparency in the client-advisor relationship. This can further erode trust and hinder the ability to make informed financial decisions.

To address these challenges, it is crucial for both clients and advisors to prioritize building strong, mutually beneficial relationships.

Reduce fees, increase returns.

High fees can significantly impact an individual's investment performance over time.

In the example provided, a family was paying exorbitant fees to their advisor, resulting in suboptimal returns on their investments. By identifying and addressing these fees, the family was able to save substantial amounts of money and improve their overall financial situation.

One key factor influencing the high fees in the financial advisory industry is the reliance on relational referrals for hiring advisors. The baby boomer generation, in particular, often hired advisors based on recommendations from friends or colleagues without fully understanding the fees and services involved. This led to situations where clients were paying excessive fees without realizing the impact on their investment returns. In contrast, millennials are more likely to research and evaluate advisors independently, leading to a more informed decision-making process.

Clients should take the time to understand the fees they are paying and the services they are receiving in return. By conducting a thorough review of their investment portfolio and seeking second opinions, clients can identify opportunities to lower fees and improve returns. Advisors, on the other hand, should prioritize transparency and communication with their clients to ensure they are providing value for the fees charged.

Your money, your power.

We also talk about the importance of recognizing that the money being managed by advisors belongs to the clients, not the advisors themselves.

This mindset shift is crucial in empowering individuals to take ownership of their financial assets and make informed decisions about their investments.

The speakers highlight the need for clients to regularly assess their financial situation and the performance of their advisors. By taking inventory of their assets and evaluating the services provided by their advisors, clients can ensure that their money is being managed in a way that aligns with their goals and values. This proactive approach to financial management allows individuals to maintain control over their assets and make changes when necessary.

Additionally, the speakers discuss the importance of communication when transitioning accounts to a new advisor. While clients are not legally required to inform their current advisor before making a change, having a conversation after the transfers have been initiated can help reframe the tone of the message. By clearly explaining the reasons for the change and expressing gratitude for past services, clients can navigate the transition process with confidence and assertiveness.

Empower yourself to find better.

It's important for clients to be aware that transfers can be done in kind, meaning securities from the old custodian can be transferred to the new custodian without incurring capital gains. A good advisor will review existing holdings, map them to the client's current situation, and transition tax-consciously to minimize any potential tax implications. Clients are encouraged to seek out advisors who will work with them to optimize their financial plans and address any concerns they may have.

Clients are urged to ask important questions such as whether they are being overcharged, how often they are receiving reviews from their advisor, and whether their advisor is addressing important aspects such as tax returns and estate planning. It is important for clients to advocate for themselves and their families to ensure they are receiving the best possible financial advice and services.

It's important to take action, even if it means having uncomfortable conversations with current advisors. The stakes of managing a significant balance sheet are too high to not take proactive steps to optimize financial plans and find the best advisor for individual needs. By empowering themselves to ask questions, seek out better advice, and make informed decisions, clients can take control of their financial futures and work towards achieving their goals.

By prioritizing your financial well-being, advocating for your own interests, and seeking out advisors who will work in your best interest, you can take control of your financial future and build stronger, more beneficial relationships with your financial advisors.

✅ Remember, it's your money and your power - make sure you are making the best decisions for yourself and your family.

Disclosure: This information is for informational purposes only. Nothing discussed during this video should be interpreted as tax, legal, or investment advice. If you have questions pertaining to your specific situation, please consult the appropriate qualified professional.