When you know it’s time and how to switch
Some relationships don’t work out. This unfortunate fact applies to spouses, friends, business partners, and financial advisors.
Chances are, you’ve started a new counselor relationship with high hopes for wealth and financial independence. But if your fortune progress slows down or contact with your mentor is cut off, there may be a breakup in your future.
This separation can be stressful. You can incur financial costs in the process. So don’t make a move until you are sure that another consultant can serve you better.
Here’s how to know when to switch financial advisors, including answers to frequently asked questions and a step-by-step guide to moving 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. Double contact
As you manage to communicate with your mentor, pay attention to the frequency and quality of your conversations. You should interact with your mentor regularly. 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, you should be able to reach your advisor within a business day or two when you have questions or concerns.
The quality of communication through these touch points is critical. It is a problem if you do not feel comfortable sharing your concerns with your mentor, or if you do not feel that your counselor is listening and responding appropriately.
The relationship should be dynamic and smooth. After all, financial goals can evolve. Your mentor should be willing to talk 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 they should always be open to a constructive discussion. If not, you might be better off with someone else.
2. Surprise fee
You cannot avoid fees when working with a financial advisor. You will either pay ongoing management fees or absorb commissions when purchasing funds and other financial assets.
Know that there are times when fees exceed investment returns. This does not automatically mean that your advisor is not working. If the entire stock market drops, for example, you are likely to see negative returns in your account – no matter how savvy your advisor is.
However, a problem arises when the fees are higher or more frequent than you expect. If you initially asked the advisor about a fee structure and then encountered something completely different, start asking questions. Do the same if the market is strong, but your performance net of fees is consistent.
3. Incompatible trading philosophy
Some advisors are market timers who trade frequently for short-term profits. Others are playing the long game, choosing high-quality stocks that are expected to appreciate over years or decades. Whatever approach you prefer, your mentor should share the same opinion. If there is a conflict about the underlying investment approach, a separation is imminent.
4. Disappointing results
Your personal finances should improve under the supervision of your advisor. If it does not, identify the source of the problem. maybe you can 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 expectations for the current market climate. If results keep falling short, you may be ready for a new one.
- Your advisor does not provide the guidance you need. You may work with an investment professional when you really need broader financial advice. Perhaps helping with budgeting or paying off debts can help you set aside money for investing, for example. In this case, a certified financial planner or certified financial advisor may be better than an investment specialist.
Questions and answers about changing financial advisors
If you recognize any of the red flags above, you’re probably already asking some high-level questions about how switching advisor works. Five common questions are answered below.
1. Can I change financial advisors?
Yes, you can replace your financial advisor. The timing and cost of the transition may be governed by the language of the contract that you agreed to when you first hired the consultant.
2. Do I have to spend my investments?
In general, you can move to a new advisor without cashing in your investment. However, there are exceptions. You will have to sell any money or assets that your new company cannot support. You might own certain classes of stock owned by your old company, for example. Or you may own assets that are outside of your new advisor’s purview – such as leveraged funds or inverse funds.
Your new advisor can review your statements and identify any positions that cannot be transferred in kind.
3. What is the cost of changing advisors?
The costs of replacing your guide vary greatly from case to case. Some advisors, for example, may charge a termination fee. Furthermore, you may also incur costs from the sale of assets that cannot be transferred. These costs can include realized losses and recovery fees.
4. How long does it take to change advisors?
Once you choose a new advisor, you can usually complete the asset transfer within two or three weeks.
5. How do I tell my old financial advisor that I’m moving?
The worst part about switching advisors may be passing the news on to your old financial partner. You have two main options:
- be honest. Your messages could be as simple as, “You’ve decided to move to a different counselor, because…” Hopefully the old counselor will take the news professionally – and appreciate that you explained why.
- Or let your new counselor do the talking. If your new advisor is adaptable, you won’t have to tell your old financial advisor anything. Fill out the documents and ask your new advisor to manage the asset transfer. Your old advisor or company may reach out and ask for feedback, but you are under no obligation to comply.
How to switch financial advisors, step by step
If you’re ready to replace your financial advisor, follow these five steps to avoid any unpleasant surprises.
1. Read your agreement with the old advisor
Read the contract with your old advisor. You are looking for any rules governing how and when you can leave the company and transfer your investment accounts. You may have to provide notice, for example, or pay a termination fee.
2. Find a new consultant
Finding a new financial advisor can take months. Take your time identifying the right person who offers the right products and services. Learn what happened 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 entire transaction history if applicable. At a minimum, document cost basis and purchase history for all assets. Note that this information must flow into your new account if you transfer in-kind assets. But it doesn’t hurt to have a backup. You will need your asset purchase history to report gains and losses on your tax returns.
4. Consult your new advisor
Ask your new advisor to review your account statements and identify any assets that are owned by the old company or that are not transferable. You will have to sell it and transfer it for cash. Estimate any costs you will incur in the process.
5. Relay 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 yes, see if your advisor will estimate the fees you may incur.
You can have this conversation while telling the counselor that you are leaving. Or, if you prefer, put your questions as fact-finding. You might say that you are trying to better understand what you own and how liquid those assets are.
6. Give your new advisor the green light
When you’re ready, give your new advisor the green light to proceed with the conversion process. As noted, the transferable assets will be transferred as is. Non-transferable assets will be liquidated and transferred in cash. The transfer process usually takes less than three weeks.
To a brighter and richer future
Replacing your mentor can be annoying, but it’s less annoying than working with the wrong person indefinitely. If someone else can offer the best financial planning and investment advice, make the switch — even if you absorb some fees in the process. The right alternative can put you on a shorter and more enjoyable path to financial freedom.