Financial advisers: Kicked in the RRSP - MoneySense

Financial advisers: Kicked in the RRSP

If your adviser has stopped returning your phone calls, it’s time to admit the ugly truth — you have just been dumped.


When Keith Welsby’s first financial adviser was promoted, he never even said goodbye. “I was really upset,” says Welsby, a national sales manager with Siemens Canada in Brampton, Ont. “Whether you classify it as being dumped or them just ignoring me because I wasn’t a valuable enough client, I really don’t know.“ Welsby was assigned a replacement adviser, but the replacement refused to return his phone calls. He finally found a new adviser at the same firm, but three years later, lightning struck again. This time his adviser announced that he was focusing his practice on richer clients and Welsby, once more, was left hanging out to dry.

As Welsby discovered, getting dumped by your financial adviser can be stressful and humiliating. Yet it’s a surprisingly common occurrence. One veteran adviser estimates that advisers throw out 20% of their clients in any given year.

On the record, advisers will insist that they abandon clients because of “philosophical differences” on investment strategy. Off the record, however, advisers will admit that the real reason they dump you is because you aren’t making them enough money.

If you think of your adviser as your friend, this may shock you. But advisers are in business to make money. They dole out their time based upon how much cash you’re putting into their pockets. If you have a million-dollar portfolio invested in actively managed mutual funds and you trade stocks and bonds like a kid with bubble gum cards, you are a dream client from an adviser’s perspective. Between the trailer fees on your mutual funds and the commissions on your trading, you are pouring thousands of dollars a year into your adviser’s wallet. But if you only have a $100,000 portfolio, and it’s all invested in low-cost index funds, you barely cover the cost of your adviser’s cuff links. You are a prime candidate for dumping.

The problem is that advisers never explain this ugly reality to clients. In fact, many advisers won’t tell unwanted clients that they’re being dumped for fear of breaching industry codes of ethics on client terminations, which, in extreme cases, could lead to revocation of their professional designation. Instead, advisers drop unprofitable clients by ignoring them until they go away, or by passing them off to another adviser — probably one who is just starting out in the business. As one jokes: “An experienced adviser’s junk is a new adviser’s treasure.”

So what can you do if you’re being ignored by your adviser or handed off to some guy who just started in the profession two weeks ago? You can complain to your adviser’s employer or professional association, but there’s no guarantee that you’ll get redress. To avoid such a conflict, consider these three tips:

Do it by yourself Despite what you may think, advisers are no better at picking great investments than anyone else — if they were, why would they still be working? If you’re prepared to do a little homework, you can easily build a diversified portfolio using low-cost mutual funds that will match or beat anything an adviser could put together. “It’s not brain surgery,” says Eric Kirzner, a professor of finance at the Rotman School of Business at the University of Toronto. (To see one approach to smart do-it-yourself investing,  look up our Couch Potato Portfolio. To find out more about do-it-yourself investing, we highly recommend The Four Pillars of Investing by William Bernstein. It’sa wonderful, no-nonsense survival guide to the financial markets.)

Do it by the hour If you require the services of an adviser to help you with estate planning or tax preparation or other issues, consider hiring an adviser who charges by the hour. The advantage of this approach is that if the adviser never calls you again, you’re not paying him anything to ignore you. Hourly paid advisers aren’t cheap — $150 to $250 an hour is a typical fee — but they can actually wind up costing you less over the course of a year than a traditional commission-paid adviser, who reaps ongoing “trailer” fees from your portfolio even if you never see him. For a list of hourly paid advisers, visit and search under “fee-only financial planner.”

Do it with someone who cares Kirzner recommends that you quiz any prospective adviser to ensure that you’re right for one another. Make sure to ask the adviser about how large a portfolio his typical client possesses. “You don’t have to be the largest fish,” Kirzner adds, “but you don’t want to be the smallest fish either. You want to be treated with respect.”