Mixing business with friendship is always risky, but it can get messy when it involves your life savings. Consider a common dilemma: You hire a financial adviser who moves in your social circle. She’s responsive, kind, and a great friend of a friend — but over the last five years, your portfolio has consistently lagged behind the market. You want to walk away, but you dread the awkwardness at the next gathering.
If you find yourself wanting some financial planning help, you aren’t alone. As of mid-2024, about 27% of Americans were working with a financial planner or adviser, according to a YouGov survey. And as more older Americans start to pass down wealth, that percentage could climb.
One reason some people might hesitate to use a financial professional is fear of being scammed or upsold. So if you’ve managed to find an adviser who’s a friend of a friend and shares a social circle, that might seem like a win. Someone you know on a personal level may be less likely to take advantage of you and purposely steer you in the wrong direction.
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What happens when your portfolio continuously trails the market? You may want to switch advisers, but that can be tricky when there’s a risk of social backlash.
Here is how to handle the situation while keeping your financial best interests a priority.
“When [an adviser] is in your inner circle, you’re more likely to treat them with kid gloves.” — John Gillet
Mixing finances and your social life isn’t the best idea
While it’s easy to see why working with someone you know socially might seem like a safe pick for managing your money, Bryan Kuderna, CFP and founder of Kuderna Financial Team, says it could be a recipe for disaster.
“Mixing feelings of social obligation with financial matters is not advisable,” he insists. “If the client and adviser are purely able to look at the portfolio and business relationship as strictly business, separate from their social lives, then it’s fine. But if there’s hesitation or potential feelings of awkwardness, then it’s not ideal.”
As Kuderna explains, when there’s a social component or obligation, “both sides may not be fully acting in the client’s best interests, which voids the fiduciary standard every professional should seek.” And keep in mind that not all advisers operate as fiduciaries; some may adhere to lower standards of “suitability,” so make sure you understand your adviser’s approach.
John Gillet, CEO and founder of Gillet Agency, also agrees that things could get tricky if your financial adviser is someone you have a social connection to, even though there could be some positives.
“When someone is in your inner circle, you’re more likely to treat them with kid gloves,” he says.
“You know that relationships and social market capital are paramount to your business. Therefore, that adviser is much more likely to answer your calls or respond to emails, providing you with a more personalized experience.”
Nonetheless, Gillet says, you deserve to feel confident in your broad financial plan. If that’s not something you’re experiencing, you should discuss your concerns with your adviser immediately.
You don’t necessarily have to cut ties
If you generally like working with your adviser and the issue you’re having concerns recent portfolio performance, the relationship may still be salvageable, provided you prefer to continue despite the potential social complications. But in that case, Gillet says, it’s important to be clear that you’re not happy with the state of your portfolio.
“Give [your adviser] a chance to recalibrate the relationship with you, your money, and your plan,” he says. “You’ve obviously established a connection with this adviser, which deserves respect, and at the very least a conversation expressing your grievances.”
Kuderna says that no matter who you work with, your adviser should be able to communicate what you can expect in terms of both service and performance.
“If there’s been chronic underperformance,” he says, “then it’s worth a discussion,” noting that five years is a reasonable timeframe to make that assertion.
Kuderna also says that there may be ways for you and your adviser to work together without them charging you a fee that’s calculated as a percentage of assets under management, which is a common structure for financial professionals.
“The adviser or client could suggest a consultation fee to take back control of managing their own assets but retaining financial advice,” he says.
That said, Kuderna cautions, “This can muddy the waters, as the adviser is not fully in control of the financial plan.” As he puts it, “It’s like driving the car with one eye closed.”
Remember that performance is relative
Another thing to keep in mind is that when it comes to an investment portfolio, underperformance can be subjective, Kuderna says.
“That is why it’s so important that the adviser clearly communicate what the client should expect,” he says.
When Kuderna works with clients, he asks them to assess their risk tolerance so he can use that information to help put together a plan that works for them individually. For clients with a very limited appetite for risk, their portfolio growth may be slow and steady.
“[Risk-averse investors] should then understand that the goal is not to get the same upside of the market, but acceptable returns that are less volatile,” says Kuderna. “Their time horizon also plays a large factor in how conservative or aggressive they may be.”
Knowing when to move on
Portfolio performance aside, it’s important to feel like you can express yourself honestly to your adviser at all times. As Gillet says, “You chose this adviser as an accountability partner. That relationship requires communication.”
If you communicate your dissatisfaction and your adviser can’t adequately address your concerns, you should consider moving on, whether that means managing your portfolio on your own or finding another firm.
In that case, Gillet says, all you should need to do is explain to your adviser that you found better alignment with your financial goals elsewhere.
“If they are a part of your circle, I’m sure you’d both handle that transition with respect and courtesy,” he says.
Kuderna agrees that being able to communicate openly is key.
“If they can’t have a real discussion regarding fees, performance, and expectations moving forward, then they know right there they have no business being in a business relationship,” he says.