How To Change Financial Advisors

Why Change Your Financial Advisor?

If you are contemplating changing your financial advisor, you are not alone in this decision. Many individuals feel the need to alter this relationship due to reasons such as poor communication, dissatisfaction with investment advice, or concerns about portfolio performance.

According to David Flores Wilson, a certified financial planner at Sincerus Advisory in New York City, clients should not feel anxious or guilty about switching from an advisor who is not helping them reach their financial goals. A direct conversation explaining the decision to move on and addressing any outstanding issues should be sufficient.

However, transitioning to a new financial advisor demands careful planning and attention to detail. In the following sections, we will guide you through the crucial steps to ensure a seamless shift while safeguarding your investments and preventing unnecessary fees.

Key Takeaways

How To Transition Smoothly

Before initiating the transition, familiarize yourself with the transfer procedure and the timing factors at your current institution. If you intend to change firms midway through the year, inquire about managing any prepaid yearly charges and whether they can be prorated. Conducting this preliminary research will assist in preventing unforeseen expenses and setbacks.

1. Review the Details of Your Contract

Begin by carefully analyzing your existing management agreement. Specifically, focus on the termination clause, which delineates the formal procedure for concluding the partnership. Some companies may necessitate a signed notice, and there could be a termination charge involved.

Being aware of these conditions in advance will facilitate a smoother transition period.

2. Keep Your Documents Safe

When you switch doctors, they must provide you with a copy of your medical records by law. However, what about your financial advisor or investment broker? Fortunately, federal regulations stipulate that your current advisor or broker must transfer all historical asset records to your new advisor.

Before you start any transfer process, make sure to download your complete transaction history from your current advisor’s online platform. Apart from your investment accounts, do not forget to secure the records of the cost basis of taxable securities. The cost basis is the asset’s price adjusted for stock splits, dividends, and return-of-capital distributions. This information is essential for IRS Schedule D when reporting taxable gains.

3. Delegate Transition Tasks to Your New Financial Advisor

Your new financial advisory firm can manage the majority of the transition process using the automated customer account transfer service (ACATS). This electronic system typically finalizes transfers within a timeframe of one to three weeks, with some specialized investments such as hedge funds possibly requiring a longer duration.

4. Assess Transfer Expenses

Certain investments come with agreements that restrict access to your funds for a set period. Prior to switching, determine the potential costs involved in transferring your assets.

Moreover, some of your investment holdings could be tied to your previous advisor’s company, making a direct transfer impossible. In such instances, liquidating these assets may be necessary, incurring associated fees and penalties.

For example, if you own an annuity contract linked to your former firm, you may need to liquidate it and then transfer the funds to your new advisor for further investment. This process might entail a fee of up to 10% of the contract’s value, referred to as deferred sales charges.

5. Consider Fund-Specific Details

Some mutual funds have holding periods ranging from five to ten years. If you hold such a fund with your previous financial institution, you might incur a contingent deferred sales charge if you decide to switch before the period elapses. This charge can be 5% or higher, with the percentage decreasing annually.

Evaluate whether it is more advantageous to retain the annuity contract or the mutual fund with your former financial advisor, or bear the cost of transitioning to a new advisor. Your new advisor can assist in making this decision. If you anticipate earning significantly more in the new setting, paying a one-time fee may be justified.

Some financial firms or advisors may reimburse you for part or all of these charges if you transfer your business to them. It is advisable to inquire about this possibility before proceeding with the switch.

Advisors Report Lack of Time with Clients

In a recent survey conducted by The Finance Avenue, it was revealed that nearly one-third (28%) of advisors admitted to not having sufficient time to dedicate to their clients.

Minimizing the Impact of a Transfer

When changing advisors, it is essential to consider the timing and preparation involved. Calculate the overall expense of the transfer, which may include termination fees, transfer charges, and possible tax consequences. It may be beneficial to leave some investments with your current advisor if the transfer costs outweigh the immediate advantages.

Your new financial advisor can assist in assessing these trade-offs and devising a transfer plan that safeguards your financial well-being.

How Can I Dismiss My Financial Advisor?

If you prefer to avoid tough discussions, simply find a new advisor, gather your online transaction records, and request your new advisor to transfer your records and assets.

Prior to making the switch, carefully review the contract you signed to uncover any potential fees associated with transferring. Additionally, assess each of your assets individually to determine if any of them are exclusive to your current firm and require selling instead of transferring.

Alternatively, you may choose to have the challenging conversation. Engaging in a dialogue with your current advisor could be beneficial to understand the reasons behind your decision to leave.

How to Identify a Reliable Finance Professional

Initially, determine whether you require the services of a financial advisor or a financial planner. A financial advisor assists in managing investments and increasing wealth, while a planner focuses on budgeting, savings plans, major expenses, and retirement planning.

Seek recommendations from acquaintances, friends, and coworkers once you have decided on the type of professional you need.

Conduct interviews with multiple candidates to identify someone who comprehends your objectives and aspirations adequately.

Qualities of an Effective Financial Advisor

An excellent financial advisor integrates professional knowledge with exceptional communication skills. It is crucial that they engage in ongoing discussions regarding your investment portfolio and overall market trends.

The ideal advisor will invest time in comprehending your financial objectives, risk appetite, and individual situation before proposing any strategies. They should offer transparent explanations for their investment approaches while openly discussing fees and any potential conflicts of interest. Above all, they should showcase a proven history of guiding clients towards their financial goals, adjusting strategies to accommodate market fluctuations and changes in personal circumstances.

The Conclusion

Ending a relationship with your financial advisor can be challenging. Before parting ways, take the time to research and understand the terms of your agreement thoroughly.

Inquire with your prospective advisor about any fees associated with transferring your assets.

Lastly, it is crucial to educate yourself about your new advisor. Be cautious of extravagant promises, as if they seem too good to be true, they likely are.