How To Switch Financial Advisors

Why Should You Change Your Financial Advisor?

If you’re considering changing your financial advisor, you’re certainly not alone. People often decide this relationship needs to change, frequently citing a lack of communication, dissatisfaction with the investment advice and ideas being provided, or concerns about their portfolio’s performance.

“Clients shouldn’t feel anxiety or guilt about moving on from an advisor that isn’t helping them achieve their goals,” David Flores Wilson, a certified financial planner at Sincerus Advisory in New York City, told us. “A straightforward conversation outlining their decision to move on and clarifying if there are any open items should be enough.”

Still, making the switch to a new financial advisor requires careful planning and attention to detail. Below, we’ll walk you through the essential steps to ensure a smooth transition while protecting your investments and avoiding unnecessary fees.

Key Takeaways

• Find out how your current firm handles transfers and what fees are involved.
• Make a copy of your old transaction records before you lose access to your old account.
• Let your new firm handle the formal transfer of your records and balance.
• Review your account for assets that might be costly to sell now. Decide whether to keep them at your old firm or take the hit.

How To Make the Switch

Before starting the move, get up to date on your current firm’s transfer process and timing considerations. If you plan to switch mid-year, ask about handling any prepaid annual fees and whether they can be prorated. This initial research will help you avoid unexpected costs and delays.

1. Read Your Contract’s Fine Print

Start by examining your current management contract. Look specifically for the termination clause, which outlines the formal process for ending the relationship. Many firms require a signed letter, and some may charge a termination fee.

Understanding these requirements up front helps you plan your transition more easily.

2. Secure Your Records

If you leave your doctor, they are required by law to give you copies of your medical records. But what about your investment broker or financial advisor? Good news: A federal regulation requires that your current advisor or broker transfer the historical records of all of your assets to your new advisor.

Before initiating any transfer, download your complete transaction history from your current advisor’s online portal. While you’re copying your investment accounts, don’t overlook the records of the cost basis of taxable securities. The cost basis is the price of the asset adjusted for stock splits, dividends, and return-of-capital distributions. It’s required information for the IRS Schedule D that you prepare to report taxable gains.

3. Leave Much of the Work to Your New Advisor

Your new advisory firm can handle most of the transition logistics through the automated customer account transfer service (ACATS). This electronic system typically completes transfers within one to three weeks, though some specialized investments like hedge funds may take longer.

4. Evaluate Transfer Costs

Some investments carry contracts that lock down your money for a specified period of time. Before you make the switch, find out what it will cost you in fees.

In addition, some of your investment accounts may be exclusive to your former advisor’s firm. In that case, you can’t automatically transfer those assets. You may be forced to sell those assets and pay related fees and penalties.

For instance, if you have an annuity contract that is proprietary to your old firm, you may have to cash it out and then transfer the proceeds to your new advisor for investment. You might have to cough up as much as 10% of the contract value, known as deferred sales charges.

5. Consider Fund-Specific Details

Some mutual funds have five- to 10-year holding periods. If you have one of these funds with your old firm, you may have to pay a contingent deferred sales charge should you choose to make the switch before the end of the period. This fee could be 5% or more. The percentage typically decreases each year.

Figure out whether it makes more sense to keep the annuity contract or the mutual fund with your former advisor or take the hit for switching—your new advisor can certainly help with this. If you expect to make much more money in the new situation, a one-time fee might be worth it.

Some investment firms or advisors will reimburse you for all or some of these fees in exchange for moving your business to them. It’s worth asking before you make the change.

Note

Almost one-third (28%) of advisors in a 2023 survey said they didn’t have enough time to spend with clients. 

Minimizing the Impact of a Transfer

When switching advisors, timing and preparation are crucial. Calculate the total cost of transferring, including any termination fees, transfer charges, and potential tax implications. Consider keeping certain investments with your current firm if transfer costs outweigh immediate benefits.

Your new advisor can help evaluate these trade-offs and develop a transfer strategy that protects your financial interests.

How Do I Fire My Financial Advisor?

If you hate difficult conversations, just slip out the back, Jack. Find a new advisor, make a copy of your online transaction records, and ask your new advisor to transfer over your records and assets.

But first, look at the fine print in the contract you signed to find out what fees you may incur when transferring. Also, examine your assets one by one to see if any are proprietary to your current firm, and therefore must be sold rather than transferred.

Then again, you might have that difficult conversation. Your old broker and you might benefit from understanding why you’re leaving.

How Do I Find a Good Financial Advisor?

First, figure out if you really want a financial advisor or a financial planner. An advisor will help you manage your investments and grow your wealth. A planner will work with you to create a budget and a savings plan, plan ahead for a major expense and set aside money for your retirement.

When you decide what kind of professional you need, ask friends, family, and colleagues for recommendations.

Then interview several candidates to find a person who you feel understands your priorities and goals.

What Makes a Good Financial Advisor?

A good financial advisor combines professional expertise with strong interpersonal skills. They should maintain regular communication about your portfolio and broader market conditions.

Look for an advisor who takes the time to understand your financial goals, risk tolerance, and personal circumstances before making recommendations. They should provide clear explanations for their investment strategies and be transparent about fees and potential conflicts of interest. Most importantly, they should demonstrate a consistent track record of helping clients achieve their financial objectives while adapting to changing market conditions and personal circumstances.

The Bottom Line

Breakups are never easy, particularly when it comes to calling it quits with your financial advisor. Before you send your current advisor packing, do your research and read all the fine print in your contract.

Ask your new advisor what fees you should expect if you switch.

Finally, don’t forget to study up on your new advisor. Beware of overly optimistic promises. If the promised returns sound too good to be true, they probably are.