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

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

Chances are you’ve embarked on a new relationship with an advisor with high hopes of wealth and financial independence. But if your wealth growth slows or communication with your advisor breaks down, there could be a breakdown in your future.

This breakup can be stressful. And you may incur finance charges in the process. So it’s not a decision to make until you’re sure another advisor can serve you better.

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

When to switch financial advisers

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

1. Miscommunication

When managing communication with your advisor, pay attention to the frequency and quality of your conversations. You should interact regularly with your advisor. At a minimum, you can expect an annual financial review. A quarterly checkup is ideal, even if it’s just a phone call away. Plus, you should be able to reach your advisor within a business day or two if you have any questions or concerns.

The quality of communication during these contact points is essential. It’s problematic if you don’t feel comfortable sharing your concerns with your advisor, or if you think your advisor isn’t listening to you and responding appropriately.

The relationship should be dynamic and fluid. After all, financial goals can change. Your advisor should be ready to discuss your changing needs, provide professional feedback, and adjust your plan as needed. This doesn’t mean your advisor agrees with everything you say, but they should always be open to constructive discussion. If not, you can do better with someone else.

2. Surprise fees

You cannot avoid fees when working with a financial advisor. You will either pay ongoing management fees or absorb commissions when you buy funds and other financial assets.

Be aware that there are times when fees will exceed investment returns. This does not automatically mean that your adviser is not performing well. If the overall stock market is down, for example, you’re likely to see negative returns in your account, regardless of how skilled your advisor is.

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

3. Incompatible Business Philosophy

Some advisors are timekeepers who trade frequently to generate short-term profits. Others play the long game, choosing quality stocks that are poised to appreciate over years or decades. Whichever approach you take, your advisor should share the same view. If there is a conflict over the fundamental investment approach, a breakdown is imminent.

4. Disappointing results

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

  • The stock market is down. Unless your advisor has promised otherwise, you can expect your account performance to follow stock market trends. Ask your advisor to help you set your expectations based on the current market climate. If results continue to fall short, you may be ready for someone new.
  • Your advisor isn’t giving you the advice you need. You may be working with an investment specialist when you really need broader financial advice. Perhaps help with budgeting or debt repayment could help you allocate funds for investing, for example. In this case, a certified financial planner or licensed financial advisor might be a better choice than an investment specialist.

Switching Financial Advisor FAQs

If you’ve recognized any of the red flags above, you may already be asking some high-level questions about how an advisor switch works. Five common questions are answered below.

1. Can I change my financial adviser?

Yes, you can replace your financial advisor. The timing and cost of the move may be governed by the wording of the contract you agreed to when you first hired the advisor.

2. Do I have to cash in my investments?

Generally, you can switch to a new advisor without cashing in your investments. However, there are exceptions. You would have to sell any funds or assets that your new business cannot support. You may hold certain classes of shares that are owned by your former company, for example. Or you may own assets that are outside the scope of your new advisor, such as leveraged or inverse funds.

Your new advisor can view your statements and identify non-transferable in-kind positions.

3. How much does it cost to switch advisors?

The costs of replacing your advisor vary greatly from situation to situation. Some advisors, for example, may charge termination fees. On top of that, you might also incur costs related to the sale of assets that cannot be transferred. These costs may include realized losses and redemption fees.

4. How long does it take to switch advisors?

Once you’ve selected a new advisor, you can usually complete the asset transfer in two to three weeks.

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

The worst thing about changing advisors can be breaking the news to your former financial partner. You have two main options:

  • Be frank. Your message can be as simple as “I’ve decided to change advisors because…” I hope the former advisor takes the news in a professional manner and appreciates that you explained why.
  • Or let your new advisor do the talking. If your new advisor agrees, you have nothing to say to your old financial advisor. Complete the paperwork and have your new advisor handle the asset transfer. Your former advisor or the company can reach out and ask for feedback, but you don’t have to comply.

How to change financial adviser, step by step

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

1. Read your agreement with the former adviser

Read the contract you have with your former adviser. You are looking for rules that govern how and when you can leave the company and move your investment accounts. You may have to give notice, for example, or pay a termination fee.

2. Find a new advisor

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

3. Download your transaction history

Log in to your account and download your entire transaction history if possible. At a minimum, document the cost basis and purchase date of all assets. Note that this information must be transferred to your new account if you are transferring in-kind assets. But it never hurts to have a backup. You will need your asset purchase history to report gains and losses on your tax returns.

4. Consult your new adviser

Ask your new advisor to review your account statements and identify any assets owned by the old company or otherwise not transferable. You will need to sell them and transfer them to cash. Estimate the costs you will incur in this process.

5. Break the news to your former adviser (or not)

Ask your former financial advisor if any of the non-transferable assets have minimum holding periods or redemption fees. If so, see if your advisor will estimate the costs you may incur.

You can have this conversation while you tell the counselor you’re leaving. Or, if you prefer, position your questions as fact-finding. You could say that you are trying to better understand what you own and the liquidity of those assets.

6. Give your new adviser the green light

When you’re ready, give your new advisor the go-ahead to proceed with the transfer. As indicated, 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.

Towards a brighter and richer future

Replacing your advisor can be unpleasant, but it’s less uncomfortable than working with the wrong person over and over again. If someone else can provide better financial planning and investment advice, make the switch, even if you absorb some costs in the process. The right replacement can put you on a shorter, sweeter path to financial freedom.

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