Dismissing Your Investment Manager: When And How To Do It

Firing an investment manager is never easy, but sometimes it's necessary. There are several reasons why you might need to let go of your investment manager. Here are some signs that it might be time to fire your investment manager:

- Poor performance or bad financial advice: If your investment manager is consistently giving you bad advice, it's definitely time to let them go. This includes recommending market timing, sector rotation, frequent churning of investments, mixing insurance and investing, high expense ratio mutual funds, loaded mutual funds, or individual stock investments.

- High fees: If you feel like the fees charged by your investment manager are too high or unreasonable, it might be time to consider alternative options.

- Lack of communication or poor customer service: If your investment manager is unresponsive, takes too long to respond, or fails to provide clear explanations about your investments, it could be a sign that you need someone who is more communicative and transparent.

- Unavailability or lack of attention: If your investment manager is too busy to give adequate attention to your account, it might be time to find someone who can.

- Inability to meet your needs: If your investment manager is unable to provide the level of service you require or fails to understand your financial goals and needs, it might be time to find someone who is a better fit.

- Red flags or unethical behaviour: Be cautious of any warning signs, such as not receiving account statements, being guaranteed market-beating returns, or being asked to write checks to the investment manager instead of their firm.

Review your contract and the reasons for firing your investment manager

Before firing your investment manager, it is important to review your contract and the reasons for your decision. Here are some key considerations:

Understand Your Contract

Firstly, get familiar with the terms and conditions outlined in your investment management agreement (IMA). This contract sets out the expectations and legal guidelines for the relationship between you and your investment manager. Standard provisions in an IMA include monitoring fees, the scope of activities, and managerial indemnification. Other key terms to look out for include:

• Parties to the Agreement: Ensure that all relevant parties, such as company founders and shareholders, have signed the IMA.
• Warranties: Warranties are assurances that the company's statements are true and accurate. Investors often seek these out to protect themselves from willful or negligent misrepresentations.
• Investor Consent: This provision prohibits managers from making significant decisions without the investor's consent. The specifics will depend on the number of investors involved.
• Shared Vehicles: Investment managers often invest client funds in mutual funds, hedge funds, or other shared vehicles, either directly or through unaffiliated managers. The IMA should specify the custodian who will hold these assets, typically a reputable financial institution separate from the investment manager.
• Reporting: Specify the type and frequency of reports you will receive from the investment manager. Typically, this includes quarterly reports on general market conditions, account activity, current holdings, and performance.
• Investment Principles: The IMA should outline the investment principles that will guide the management of your account. These should be based on your current circumstances and risk tolerances and should be reviewed regularly.
• Expenses and Fees: The IMA should detail the fees you will be charged, typically expressed as a percentage of account assets, along with other expenses you are responsible for, such as brokerage commissions and custodial fees.

Reasons for Firing Your Investment Manager

While reviewing your IMA is important, it is also crucial to have valid reasons for letting go of your investment manager. Here are some common reasons why people fire their investment managers:

• Poor Communication: If your investment manager is unresponsive, takes too long to respond, or fails to communicate effectively, it can lead to a breakdown in trust.
• Lack of Client Focus: A good investment manager should listen to your goals, dreams, and fears to tailor their advice to your needs. If they are making recommendations without understanding your context, they may not have your best interests at heart.
• Excessive Jargon: While investing is a complex field, a skilled investment manager should be able to explain strategies and recommendations in a way that you can understand. Be wary of managers who confuse you with jargon or are unable to provide clear explanations.
• High Fees and Expensive Investments: It is essential to keep an eye on the fees and expenses associated with your investments. If you feel that your investment manager is steering you towards investments with high commissions or similar alternatives available for lower costs, it may be time to consider other options.
• Poor Performance: If your investment manager consistently underperforms, especially over several quarters or years, it may be a sign that they are not the right fit for you. However, remember that even the best managers can underperform from time to time, so use your judgment and conduct a thorough review before making a decision.

Decide on your next steps

Before you fire your investment manager, it's important to know what you will do with your money going forward. Here are a few options to consider:

• DIY: If you are comfortable managing your own money, you could transfer your investments to an online broker and handle things yourself. This option gives you the most control over your finances, but it also requires the most time and effort on your part.
• Find a new advisor: If you want someone to guide you through the process, you can hire a new financial advisor. When looking for a new advisor, consider choosing a fiduciary "fee-only" financial advisor. These advisors charge a predetermined price to provide you with financial advice, and they do not have a financial incentive to put your money in a particular fund or sell you insurance.
• Robo-advisors: This is a good alternative for people who aren't comfortable managing their investments themselves but can't afford the cost of a fee-only advisor. Robo-advisors provide automated investment advice based on algorithms and are typically lower in cost than traditional financial advisors.

Once you've decided on your next steps, it's important to do your homework and choose the path you are most comfortable with moving forward.

If you're not sure which option is right for you, consider consulting with a financial professional or doing additional research to make an informed decision. It's important to remember that there is no one-size-fits-all solution, and the best option for you will depend on your financial goals, risk tolerance, and personal preferences.

Additionally, if you're currently working with a financial advisor and are considering switching to a new one, it may be worth communicating your concerns with your current advisor first. There may be a chance to improve the relationship and address any issues you're facing.

Request a copy of your investment records

Requesting a copy of your investment records is an important step before firing your financial advisor. You are entitled to these records, which contain valuable information about your investing history.

To obtain your investment records, you can contact your advisor or their administrative assistant and ask for a copy. Alternatively, if you have a new advisor, they can handle the process of obtaining the records on your behalf. This may involve signing a few forms, but it ensures a smooth transition between advisors.

It is important to review your contract with your current advisor, as it may contain specific instructions on how to terminate the relationship and any associated fees. Being aware of these details beforehand can help make the process more straightforward.

By obtaining your investment records, you can gain a comprehensive understanding of your financial situation and make more informed decisions about your future investments. This step is crucial for maintaining financial clarity and ensuring a seamless transition as you part ways with your current advisor.

Understand the process of firing your investment manager

Understanding the process of firing your investment manager begins with acknowledging the power dynamic in an advisor-advisee relationship, which is tilted towards the advisor as they are the financial expert. This can make challenging or firing them difficult. However, here are some steps to help you understand the process:

Review your contract

When you first hired your financial advisor, you likely signed several documents. Read through these carefully to understand the termination clause and any associated fees. If you can't find the contract, ask your advisor or their assistant for a copy.

Decide on your next steps

Before firing your current advisor, it's a good idea to know what you will do with your money going forward. You have three options: manage your finances yourself, find a new advisor, or use a robo-advisor.

Request your investment records

Before firing your advisor, request a copy of your investment records, which you have a right to. These files contain valuable information about your investment history.

Fire your advisor

Refer to your contract for termination instructions. You will likely need to provide a signed letter. If you are working with a new advisor, they can handle this part of the process. If not, keep your letter brief and professional.

Be prepared for a retention pitch

If you are dealing with a financial salesperson rather than an advisor, be prepared for them to try and talk you out of leaving. You do not need to engage in this conversation if you do not want to. Make it clear your decision is final, and stick to the business of transferring your assets and completing the necessary paperwork.

Be prepared for a difficult conversation

Firing an investment manager is never easy, but sometimes it's necessary. It's important to be prepared for a difficult conversation and to follow the right steps to ensure a smooth transition. Here are some tips to help you navigate this process:

• Review your contract: Before taking any action, carefully read through the contract you signed with your investment manager. Look for any clauses related to terminating the relationship and take note of any fees or other relevant information. Understanding your contractual obligations will help you approach the situation confidently and effectively.
• Reflect on the reasons: Take time to consider why you are unhappy with your investment manager. Is it due to poor performance, lack of communication, high fees, or other issues? Identifying the specific reasons will help you communicate your concerns clearly and make an informed decision about your next steps.
• Communicate your concerns: Before making a final decision, consider discussing your concerns with your investment manager. They may be open to addressing your issues and making improvements. However, if you feel that your concerns have fallen on deaf ears or that the issues are irreparable, it may be time to move on.
• Choose your next steps: Decide what you will do with your investments after terminating the relationship. You can choose to manage your investments yourself, find a new investment manager, or explore alternative options such as robo-advisors. It's important to do your research and choose the path that aligns best with your needs and comfort level.
• Request your investment records: Before firing your investment manager, ensure you have all the necessary investment records. You are entitled to these documents, which contain valuable information about your investment history.
• Follow the termination process: Refer back to your contract for specific instructions on terminating the relationship. It may require a signed letter or other formal communication. Be brief, professional, and clear in your communication. If you are working with a new investment manager, they may be able to handle the termination process on your behalf.
• Handle resistance professionally: If your investment manager tries to retain you or does not comply with the termination, remain firm in your decision. You can threaten to file a complaint with the compliance department or state regulator if necessary. Remember, your financial well-being is paramount, and you have the right to make changes that align with your best interests.

Frequently asked questions