When You Know It’s Time and How to Switch

Some relationships just don’t work out. This unfortunate truth applies to spouses, friends, business associates and financial advisors.

Chances are, you have started a new mentoring relationship with high hopes for wealth and financial freedom. But if the progress of your estate slows down or communication with your advisor stops, you may have a breakup in the future.

That breakup can be stressful. And you may bear the financial cost in the process. So it is not a step until you are certain that another advisor can serve you better.

Here’s how to know when it’s time to change financial advisors, including answers to frequently asked questions and a step-by-step guide to moving your assets.

When to Change Financial Advisor

There are many reasons why a partnership with your investment advisor can go sideways. Most of those reasons fall into four categories of red flags: poor communication, fee structure, business philosophy and financial results.

1. Poor communication

As you manage communication with your advisor, pay attention to the frequency and quality of your interactions. You should have regular conversations with your advisor. At a minimum, you can expect an annual financial review. Quarterly check-in is ideal, even if it’s just a quick phone call. In addition, when you have questions or concerns, you will be able to reach your advisor within one or two business days.

The quality of communication is important during those touch points. This is problematic if you don’t feel comfortable sharing concerns with your advisor, or you don’t think your advisor listens and responds appropriately.

The relationship should be dynamic and fluid. Eventually, financial goals can evolve. Your advisor should be ready to talk to you about your changing needs, provide professional feedback, and adjust your plan if necessary. This doesn’t mean that your advisor agrees with everything you say – but he should always be open to constructive debate. If it’s not, you might do better with someone else.

2. Surprise Fees

You cannot avoid fees when working with a financial advisor. You will either pay an ongoing management fee or you will absorb the commission when you purchase funds and other financial assets.

Know that sometimes the fees will outweigh the investment returns. This does not automatically mean that your advisor is not performing. For example, if the entire stock market is down, you will likely see negative returns in your account – no matter how knowledgeable your advisor is.

However, problems arise when the charges are much or more frequent than you expect. If you asked the advisor to outline the fee structure initially and then experienced something different, start asking questions. Do the same if the market is strong, but the net performance of your fees is flat.

3. Inconsistent Business Philosophy

Some advisors are market timers who trade frequently to generate short-term profits. Others play the game longer, choosing quality stocks that are ready to appreciate over years or decades. Whichever approach you prefer, your advisor should share the same approach. If there is a conflict on the fundamental investment approach, a breakup is imminent.

4. Disappointing Results

Your personal finances should improve under the guidance of your advisor. If this is not happening, identify the source of the problem. It could have been:

  • The stock market is down. Unless your advisor has promised otherwise, you can expect the performance of your account to follow stock market trends. Ask your advisor to help you set expectations for the current market environment. If the results keep coming in low, you may be ready for someone new.
  • Your advisor is not providing the guidance you need. Maybe you’re working with an investment expert when you really need comprehensive financial advice. For example, perhaps creating a budget or paying down debt can help you allocate money for investments. In that case, a certified financial planner or chartered financial advisor may be a better fit than an investment specialist.

Frequently Asked Questions About Changing Financial Advisors

If you recognize any of the red flags above, you may already be asking some high-level questions about how an advisory switch will work. Below are answers to five common questions.

1. Can I change financial advisor?

Yes, you can change your financial advisor. The timing and cost of the move may be governed by the language of the contract that you agreed to retain the Consultant in the first place.

2. Do I have to redeem my investment?

Normally, you can switch to a new advisor without liquidating your investment. There are exceptions though. You will have to sell any funds or assets that your new firm cannot support. For example, you may have certain share classes that are owned by your old firm. Or you may have assets that are outside the scope of your new advisor — such as leveraged or inverse funds.

Your new advisor can review your statements and identify any positions that cannot be transferred.

3. What does it cost to change consultants?

The cost of replacing your advisor varies dramatically from one situation to another. Some advisors, for example, may charge a termination fee. On top of that, you may also incur costs from selling properties that cannot be transferred. Those costs can include actual damages and redemption charges.

4. How long does it take to change consultants?

Once you have selected a new advisor, you can usually complete the asset transfer within two or three weeks.

5. How Do I Tell My Old Financial Advisor I’m Moving?

The worst part of switching advisors can be passing the news to your old financial partner. You have two main options:

  • Be candid. Your message could be as simple as, “I’ve decided to go to a different advisor, because…” Hopefully, the older advisor will take the news professionally – and appreciate you’ve explained why.
  • Or, let your new advisor do the talking. If your new advisor is liable, you don’t need to tell your old financial advisor anything. Fill out the paperwork and manage the asset transfer from your new advisor. Your old advisor or firm may contact you and ask for feedback, but you are not obligated to comply.

How to Switch Financial Advisors, Step by Step

If you’re ready to change your financial advisor, follow these five steps to avoid any unpleasant surprises.

1. Read your agreement with the old advisor

Read the contract you signed with your old advisor. You are looking for any rules that govern how and when you can leave the firm and transfer your investment accounts. For example, you may have to give notice, or pay a termination fee.

2. Find a New Mentor

Finding a New Financial Advisor May take months. Take your time identifying the right person, who provides the right products and services. Learn from what went wrong with the old advisor, so you don’t have to repeat the process.

3. Download your transaction history

Log in to your account and download your complete transaction history, if possible. At a minimum, document the cost-basis and purchase date of all properties. Note that this information must flow to your new account if you transfer assets in kind. But it never hurts to have a backup. You will need your asset purchase history to report profit and loss on your tax return.

4. Consult Your New Advisor

Ask your new advisor to review your account statement and identify any assets owned by the old firm or otherwise not transferable. You have to sell these and transfer them as cash. Estimate any costs you will incur in that process.

5. Report Your Old Advisor (Or Not)

Ask your old financial advisor if any non-transferrable assets have a minimum holding period or redemption fee. If yes, see if your advisor will estimate the fee you will charge.

You can have this conversation while you are telling the advisor that you are leaving. Or, if you prefer, keep your questions as fact-finding. You might say that you are trying to better understand what you have and how liquid those assets are.

6. Give the Green Light to Your New Advisor

When you are ready, give your new advisor the green light to proceed with the transfer. As mentioned, transferable assets will proceed in the same way. The non-transferrable assets will be liquidated and transferred in cash. The transfer usually takes less than three weeks.

for a brighter, prosperous future

Changing your advisor can be unpleasant, but it’s less uncomfortable than working with the wrong person indefinitely. If someone else can provide better financial planning and investment advice, make the switch — even if you incur some fees in the process. The right replacement can put you on a shorter, more enjoyable path to financial freedom.

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