When you know it’s time and how to make the switch

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

Chances are you’ve started a new relationship as a consultant with high hopes of wealth and financial independence. But if the progress of your wealth slows down or your communication with your advisor breaks down, there could be a break in your future.

That breakup can be stressful. And you can incur financial costs in the process. So that’s not a move to make until you are certain that another consultant can serve you better.

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

When to change financial advisors

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

1. Poor communication

As you manage communication with your advisor, pay attention to the frequency and quality of your conversations. You should interact with your advisor on a regular basis. At a minimum, you can expect an annual financial review. A quarterly check-in is ideal, even if it’s just a quick phone call. Additionally, you should be able to contact your advisor within one or two business days if you have any questions or concerns.

The quality of communication during those points of contact is critical. It is problematic if you are not comfortable sharing concerns with your counselor or if you do not feel that your counselor is listening and responding appropriately.

The relationship should be dynamic and fluid. After all, financial goals can evolve. Your advisor needs to be willing to talk about your changing needs, provide professional feedback, and change your plan as needed. This doesn’t mean your advisor agrees with everything you say, but he should always be open to constructive debate. If not, you might do better with someone else.

2. Surprise Commissions

You can’t avoid commissions when working with a financial advisor. You will pay ongoing management fees or absorb the fees when you buy funds and other financial assets.

Know that there are times when fees will exceed investment returns. This does not automatically mean that your advisor is not working. If the entire stock market is down, for example, you will likely see negative returns in your account, no matter how experienced your advisor is.

Problems arise, however, when the fees are much higher or more frequent than you expect. If you initially asked the consultant to outline the fee structure and then experienced something very different, he starts asking questions. Do the same if the market is strong, but your after-commission performance is flat.

3. Incompatible trading philosophy

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

4. Disappointing results

Your personal finances should improve under the guidance of your advisor. If this does not happen, identify the source of the problem. It could be:

  • The stock market is falling. Unless your advisor has promised otherwise, you can expect your account performance to follow stock market trends. Ask your advisor to help you set expectations for the current market climate. If the results continue to be insufficient, you may be ready for someone new.
  • Your advisor is not providing the guidance you need. You could work with an investment specialist when you really need broader financial advice. Perhaps help with budgeting or debt payment could help you allocate funds for investing, for example. If so, a certified financial planner or licensed financial advisor may be more suitable than an investment specialist.

Frequently Asked Questions About Changing Financial Advisors

If you’ve recognized any of the red flags above, you may already be asking a few high-level questions about how a consultant change would work. Five common questions are answered below.

1. Can I change financial advisor?

Yes, you can replace your financial advisor. The time and cost of the move can be governed by the language of the contract that you agreed when you first hired the consultant.

2. Do I have to cash out my investments?

Typically, you can switch to a new advisor without taking your investments. There are exceptions, however. You should sell any funds or assets that your new company cannot support. For example, you might own some share classes owned by your old company. Or you may own 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 in kind.

3. How much does it cost to change consultants?

The costs of replacing your consultant vary greatly from one situation to another. Some consultants, for example, may charge resolution fees. Additionally, you may also incur costs arising from the sale of assets that cannot be transferred. These costs may include realized losses and redemption fees.

4. How long does it take to change consultants?

After selecting a new advisor, the asset transfer can usually be completed within two to three weeks.

5. How do I tell my old financial advisor that I am moving?

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

  • Be blunt. Your message can be as simple as “I’ve decided to switch to a different consultant, because …” Hopefully the old consultant will take the news professionally and appreciate your explaining why.
  • Or let your new advisor do the talking. If your new advisor is available, you don’t have to tell your old financial advisor. Fill out the documents and ask your new advisor to manage the asset transfer. Your old consultant or company may contact you and ask for feedback, but you don’t have to comply.

How to change financial advisor, step by step

If you are ready to replace your financial advisor, follow these five steps to avoid any unpleasant surprises.

1. Read your agreement with the old consultant

Read the contract you have with your old consultant. You’re looking for any rules that govern how and when you can leave the company and move your investment accounts. You may need to give notice, for example, or pay termination fees.

2. Find a new consultant

Finding a new financial advisor can take months. Take your time to identify the right person, who offers the right products and services. Learn what went wrong with the old consultant, so you don’t have to repeat this process.

3. Download your transaction history

Log into your account and download your entire transaction history if possible. At a minimum, document the cost basis and date of purchase of all assets. Please note that this information should flow into your new account if you transfer assets in kind. But it never hurts to have a backup. You will need asset purchase history to report gains and losses on your tax returns.

4. Consult your new advisor

Ask your new advisor to review your statements and identify any assets that are owned by the old company or otherwise non-transferable. You will have to sell them and transfer them for cash. Estimate all the costs you will have to incur in that process.

5. Break the news to your old advisor (or not)

Ask your old financial advisor if any of the non-transferable assets have minimum holding periods or redemption fees. If so, see if your advisor estimates the fees you may have to pay.

You can have this conversation while you tell the counselor that you are leaving. Or, if you prefer, position your questions as cognitive. You could say that you are trying to better understand what you own and how liquid those assets are.

6. Give the green light to your new advisor

When you’re ready, give your new advisor the green light to proceed with the transfer. As noted, the transferable assets will be transferred as is. Non-transferable assets will be liquidated and transferred in cash. The transfer usually takes less than three weeks.

For a brighter and richer future

Replacing your counselor can be unpleasant, but it’s less inconvenient than working indefinitely with the wrong person. If someone else can provide better financial planning and investment advice, he makes the switch, even if you absorb some fees in the process. The right replacement can put you on a shorter and more pleasant path to financial freedom.


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