Trusted Regina’s Financial experts tip on how to break up with your Financial Advisor - PART 1:
Barry Choi was walking through an underground path in downtown Toronto one winter when he ran into his former financial advisor.
“Hey, how are you doing?” Mr. Choi said to him. Their relationship had not worked out; but Mr. Choi wanted to be civil, and at first, it was.
Then his former advisor said, “Just so you know, you ruined my life.”
“I don’t know what you’re talking about,” Mr. Choi protested.
“You ruined me,” he continued. “You have to live with it. I hope you go to sleep and you think about me…I hope you die.”
Breaking up with your financial advisor can be an emotional and stressful event — almost as traumatic as a romantic break-up. The reasons are also somewhat similar: “I’ve found someone else (another advisor). I’ve changed and my needs are different (I’m done with mutual funds). I want to go out there on my own and explore my options (I’m signing up with a discount brokerage).”
Your relationship with your advisor is highly charged because it is based on that all-important thing: your life savings. But getting out of the relationship needn’t involve any shouting or tears.
“Initially in the relationship, you put a lot of faith in this person, when it doesn’t work out, trying to communicate with someone that you’ve lost that faith or that it didn’t work out is quite a personal thing,” says Kathy Waite, a fee-only advisor who serves clients in and around Saskatchewan.
So what happened between Mr. Choi and his financial advisor to merit the vitriol?
“I figured, ‘Oh, this guy is going to be looking out for me.’ He was a friend to begin with. With the banks, they never follow up with you but with this guy, he was more active.”
They went over his goals. They talked about his short-term plans of getting engaged and putting a down payment on a home. They did not discuss in detail fees.
About a year or two later, Mr. Choi was chatting on a discussion board when someone suggested he look into the fees associated with his mutual funds.
“I called the firm directly and said, ‘What am I paying as far as fees are and if I need to pull this money out, am I being charged for it?’” he says.
They explained his management expense ratio and his deferred sales charges. “They said, ‘If you want to withdraw, you’ll be paying five to six percent.’”
“It was a huge hit. I was in total shock.”
He reached out to his advisor for an explanation and received little response. He then spoke to the advisor’s supervisor. “In the original paperwork, the advisor actually wrote that in the short-term I’d be looking for a home. When I presented that to the manager, he said, ‘If you said ‘short-term,’ why would he put you in any funds with a back-loaded fee?’”
Mr. Choi transferred his funds out of the company and the company decided to waive the fees. The advisor was eventually let go from the firm.
“It’s an industry that works very much on referrals. That’s how advisors get their clients, [they’re] friends of friends,” Ms. Waite says. “I’ve had clients who are not happy but [their advisor is] a friend of [their] son’s. That has been a real problem. How do you have a dispute with someone who is an acquaintance or a friend?”
Even if your advisor isn’t a personal friend, money is a sensitive issue. And money issues can seem complex to the average person. If clients go in unprepared and try to discuss their concerns, they may get blasted with “a load of jargon and leave defeated and belittled,” Ms. Waite says.
“Have some confidence and know your facts. You have rights. No one cares about your money more than you do. You don’t have to apologize for not being happy.”
That being said, there is a good way and a bad way to approach your advisor with concerns. No one is recommending you recreate the court scene from A Few Good Men (“I want the truth!” “You can’t handle the truth!”).
“I’d go in and try and have a dialogue. Let’s treat each other with respect,” Ms. Waite says.
“Unfortunately, what I hear is, the majority of times, the advisors go on the defensive. They’re used to telling people what to do. If you turn around and question that, don’t be surprised if they’re not comfortable with what you’re saying.”
If the talk doesn’t work out, put it in writing. Pen a polite letter — state the issues, your evidence and a deadline for a response — and stick it in the mail. “[Also say,] ‘I’m willing to work with you to find an amicable resolution but I will escalate it.’ You have to be willing to say who you will escalate it to,” she adds.
Escalate the issue in writing with the firm; they have 90 days to respond to a complaint with its final decision, according to Investment Industry Regulatory Organization of Canada (IIROC). If you are not satisfied with the way the firm handled your case, you can contact a regulatory agency or seek arbitration or legal recourse (which could be costly).
To report a suspected regulatory violation, you can reach out to IIROC or the Mutual Funds Dealers Association; they investigate complaints and dole out disciplinary action, including fines and suspensions.
Stay tuned for Part 2!!!
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