Warning Signs You Should Switch Financial Advisers

The Experts from the Wall St Journal write: You entrust your financial adviser with a lot of important information. While it's crucial to maintain a good relationship, it isn't always easy to tell when to jump ship.

With this issue in mind, we asked The Experts: What are key warning signs that should make you consider switching financial advisers?

This discussion relates to a recent Journal Report on how to fire your financial adviser and formed the basis of a discussion on The Experts blog on Sept. 19.

7 Signs Your Financial Adviser Is a Flake

MICHELLE PERRY HIGGINS: Having a trusted financial adviser and someone that is always working in your best interest is imperative. They can make or break your financial planning and investment experience. Here are just a few red flags that it might be time to leave your adviser:

1. It takes several days or weeks for them to call you back. Or worse, they never follow up on a request you made.

2. They switch firms every couple of years, which may indicate that they lack stability.

3. Every time you see them they continually push products on you. That is a salesperson, not a financial adviser.

4. Financial planning is low priority for them and they fail to discuss your situation in detail: debt, cash flow, retirement, insurance, estate and tax planning. Having a comprehensive financial plan is a necessity with a good adviser.

5. They fail to send a quarterly portfolio-performance statement that also shows exactly how they are paid. Caveat emptor.

6. They appear to be an emotional adviser who constantly changes investment strategy.

7. They have no consistent client-review cycle.

Michelle Perry Higgins (@RetirementMPH) is a financial planner and principal at California Financial Advisors.

Beware of Financial Advisers Who Won't Talk About Fees

RICK FERRI: Key #1: It's time to consider switching when you can't figure out how much you're paying in fees and expenses, and your adviser avoids the issue. Investment costs are important. You should know exactly what you're paying and to whom. This includes the adviser fees, commissions, mutual-fund fees and any administrative costs.

Key #2: It's time to consider switching when you can't figure out how your portfolio has been performing or how this return compares to appropriate market indexes. Top advisers disclose their performance to clients for better or worse, and they create clear and concise reports that compare returns to appropriate benchmarks. These reports show net-net, meaning they include the adviser's management fee in addition to all other costs.

Key #3: It's time to consider switching when you ask your adviser about low-cost index funds, and they scoff at the idea. The benefits of using low-cost index funds are well documented, and every learned adviser knows the facts (see "A Case for Index Fund Portfolios"). I'm not suggesting that all advisers should use index funds, but they should acknowledge that index funds are tough to beat and that there is no sure way to pick winning active fund managers.

Rick Ferri is founder of Portfolio Solutions LLC and the author of six books on low-cost index-fund and ETF investing. His blog is RickFerri.com.

A Financial Adviser Has to Be More Than Knowledgeable

RAFAEL PARDO: When your financial adviser becomes either inattentive or nonresponsive to your requests, particularly those relating to information and explanation, an alarm bell should immediately go off in your mind. In hiring a financial adviser to guide or control your investment decisions, you presumably have done so because he or she has superior information about money management and will use that information to deal on your behalf with others who likewise have superior information. But your adviser's acumen, without more, should be insufficient to establish the level of trust necessary for inspiring confidence that your adviser will champion your best interests in managing your money. Ideally, your adviser will cogently explain his decision-making process in recommending and taking courses of action on your behalf. Such an explanation should leave you assured that your adviser conceives of himself as your alter ego—that is, that his decisions would be no different if he were managing his own money and had similar risk preferences and financial goals as you.

Conceptualizing the adviser-client relationship in this way highlights that your adviser's communications are a critical lens for evaluating the performance results achieved by his recommendations and actions. (After all, sometimes good decision making can lead to poor results, and sometimes poor decision making can lead to good results.) At the end of the day, you should want to know why it is that your adviser has suggested or adopted a particular investment strategy over others. If he fails to communicate his reasoning or if he provides an explanation that is cavalier or nontransparent, that may be a red flag indicating that it is time to find a new adviser.

Rafael Pardo (@bankruptcyprof) is the Robert T. Thompson Professor of Law at Emory University, where he specializes in bankruptcy and commercial law.

The Most Important Quality in a Financial Adviser: Communication

ELEANOR BLAYNEY: 1. When you do not understand what the adviser has communicated to you.

2. When your adviser has not asked you if you understand what has been communicated to you.

3. When your adviser has not communicated to you whether he or she is a fiduciary adviser.

4. When your adviser does not communicate what "fiduciary" means in the context of your advisory relationship.

5. When your adviser is not communicating with you, period.

Eleanor Blayney (@EleanorBlayney) is consumer advocate of the Certified Financial Planner Board of Standards.

Why Dump a Financial Adviser? Let Me Count the Reasons.

GEORGE PAPADOPOULOS: My newest clients decided to leave their wirehouse broker because, in their words, they faced a "crisis of trust" and now wanted to work only with a fiduciary adviser. According to them, a combination of factors had built up over several years. They aren't alone. Although any one specific factor may be the spark that ignites the decision to switch, by the time that happens several other factors have already begun smoldering. They include:

1. Not knowing how much and/or how your adviser is getting paid

2. Feeling you are not being listened to

3. Not getting your phone calls or emails returned promptly

4. Being proactively contacted only to be sold different products (usually involving some type of annuity or life insurance)

5. Not understanding what you are advised to invest in

6. Not having an overall plan

7. A nagging feeling that your adviser's interests are not aligned with yours

8. Not being offered advice on matters involving taxes and estate planning

George Papadopoulos (@feeonlyplanner) is a fee-only wealth manager in Novi, Mich., serving affluent individuals and families.

Why Performance Isn't the Main Factor in Picking a Financial Adviser

JOHN ROGERS: The red flags should go up if you are concerned whether your adviser is acting ethically and in your best interests. Studies we have done show that establishing a relationship of trust is at the top of the list for investors when meeting with a financial adviser, leaving investment performance, the firm's name, and other factors as also-rans. It seems investors are already clear about what they want and need in order to get good investment advice: Transparency, the adviser's commitment to act in your interests, and committing to ethical business best practices come out on top, according to the recent CFA Institute/Edelman Investor Trust Study. Complex financial products that have layers of fees, sanctions by regulatory agencies or professional bodies on the adviser or the firm, high and short-term investment turnover in the account, changes in key personnel, ownership-structure changes, and infrequent or incomplete communications are all warning signs for investors to start asking tough questions.

John Rogers is the president and chief executive of the CFA Institute.