Recent CRM2 disclosure rules have put fees and performance in the spotlight for investors. As more clients see the dollars-and-cents breakdowns in their accounts, they may be able to more easily see when their advisors aren’t meeting their expectations.
But investment fees and returns aren’t the only measure that clients use to evaluate advisors.
One consideration is the breadth of service that’s being offered. “At the highest levels, great advisors address all issues, are great behavioural coaches, and provide life planning across generations,” London, Ontario-based financial educator Talbot Stevens told the Globe and Mail
. Lesser-value advisors, on the other hand, focus solely on less specialized tactics like maximizing before-tax account values at retirement using RRSPs.
Another consideration is the technical aspects of leaving an advisor. The transfer of investment holdings may be done in cash or in kind (in securities), according to Cynthia J. Kett at Stewart & Kett Financial Advisors in Toronto. Holdings in non-registered investment accounts that are sold prior to the transfer would trigger taxable capital gains or losses. Transfers done in kind or between two registered accounts (such as from RRSPs, TFSAs, or RRIFs to their equivalent at a new institution) would result in no tax consequences, but would usually still involve an administration fee.
Deferred-charge mutual funds could also result in significant costs if they’re sold too early, even if they’re held in registered accounts. “Investors may need to hold some funds up to seven years before they can avoid triggering deferred sales charges,” she said.
The decision to move could also be due to a more basic shortfall: a gap in attention or service. People may decide to move to a smaller investment management shop when they’ve accumulated sufficient wealth, according to Shannon Lee Simmons from Toronto’s New School of Finance. And there are other cues that clients could take.
“It’s time to move on if the relationship with the advisor has gone south and you feel uncomfortable talking to them,” Simmons said. In such a case, she advised, it’s best to interview two or three and search for referrals.
When a client decides to abandon their advisor, they could switch to another — or they could decide to manage their assets themselves. Of course, the decision to go DIY might not be easy for clients used to consulting a financial expert.
“The reason many people rely on an outside advisor to manage their assets is because they have made a decision that they are not in the best position to look after this aspect of their lives,” said Anthony Boright, president of fintech company InvestorCOM. “Having made that initial decision, many people will be unwilling to make a change even in the face of evidence that suggests that maybe they should.”
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