How to Change Financial Advisors

You’re not alone if you’re considering changing your financial advisor. Many investors have switched advisors at some point in their financial journey, and it’s important to be selective with your personal finances.

The question now is, how should you go about changing your financial advisor? In this blog post, we’ll discuss why people switch financial advisors and tips for ensuring a smooth transition.

From understanding your current firm’s transfer process to collecting your investment records, we’ll guide you through the steps necessary to make a successful switch.

How Do I Change Financial Advisors?

If you intend on switching advisors, having a clear plan in place is important to ensure a smooth transition. In this section, we will discuss the necessary steps you should take to change financial advisors effectively.

Check with Your Current Firm

Before making decisions, check with your current firm to understand their transfer policies and procedures.

Inquire about any potential timing issues that may arise from switching mid-year and determine if there are any fees associated with transferring your account. If your current firm charges an annual management fee, find out if this fee can be prorated if you decide to switch before the year ends.

Read Your Contract’s Fine Print

Take the time to review your management contract with your current advisor carefully. This contract typically contains details on formally terminating the advisor-investor relationship.

Familiarize yourself with any applicable termination fees and understand the steps needed to end the contract. Awareness of these details allows you to make informed decisions and avoid surprises during the transition.

Collect Your Investment Records

Collecting all your investment records is essential as you prepare to change financial advisors. According to federal regulations, your current advisor or broker must transfer the historical records of all your assets to your new advisor.

However, we advise obtaining copies of your transaction history before transferring to avoid issues if your old advisor develops any hard feelings. This extra step ensures that you have a backup of this valuable information in case any issues arise during the transition.

Most investment firms provide investors access to their transaction history through a secure online account. Take advantage of this feature and download all the necessary records before you lose access to your current account. Don’t forget to include the cost basis records of taxable securities, as this information is vital for IRS reporting purposes.

Leave the Dirty Work to Your New Advisor

Once you have selected your new advisor, it’s time to let them handle the formal transfer process. Your new firm will request your account balance and transaction records from your previous advisor, streamlining the transition.

By entrusting this task to your new advisor, you can focus on reviewing your investment strategy and goals with them, ensuring that your financial needs are met effectively.

Changing financial advisors may seem like a difficult task, but by following these steps, you can navigate the process smoothly.

Take the time to check with your current firm, understand your contract, gather your investment records, and rely on your new advisor to handle the transfer. Doing so can make a seamless transition and confidently move forward in your financial future.

Reasons for Changing Financial Advisors

There are various reasons why people make this decision, including:

Lack of Communication

Effective communication is crucial in any professional relationship, which holds true for the relationship between you and your financial advisor. Your relationship with your financial advisor can be one of the most important partnerships you make in your entire life.

If your advisor or brokerage isn’t proactively communicating with you, promptly addressing your concerns, or keeping you updated on the status of your investments, it may be a sign that it’s time for a change.

Open and transparent communication is essential for building trust and meeting your financial goals.

Lack of Good Advice and Ideas

One of the primary reasons for hiring a financial advisor is to benefit from their expertise and knowledge in managing your finances.

If your advisor consistently provides mediocre advice or lacks innovative ideas and strategies to help you reach your financial goals, it might be time to explore other options.

Your financial advisor should be able to offer personalized and valuable insights to help you make informed decisions about your investments.

Poor Performance Relative to the Stock Markets

Investing in the stock market comes with inherent risks, but if your financial advisor consistently underperforms relative to the market, it could be a cause for concern.

While market fluctuations are beyond anyone’s control, a competent financial advisor should be able to manage your portfolio in a way that considers your risk tolerance and maximizes potential returns. It may be worth considering a change if you consistently see disappointing results compared to market benchmarks.

Remember, changing your financial advisor is a significant decision that shouldn’t be taken lightly. It’s important to thoroughly evaluate your reasons for wanting to make a switch and consider the potential benefits and drawbacks.

Ultimately, you want to ensure that your financial advisor is aligned with your goals and can effectively guide you toward financial success.

Ethical Concerns

If you have ethical concerns about your current or former advisor, you can report them to the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), and your state’s regulatory agencies.

Conflicts of Interest

You may want to switch financial advisors if you suspect they have conflicts of interest with the specific investments they recommend. Anyone can call themselves a financial advisor, but not everyone has the credentials to back it up.

For this reason, we recommend working with a fee-only fiduciary financial advisor because they are legally obligated to be transparent about their fee structure and remain unbiased in their recommendations.

The following financial advisors are held to the fiduciary standard:

You can confirm a financial advisor’s fiduciary responsibility, licenses, and disciplinary history on FINRA’s BrokerCheck tool.

New Short-Term Goals or Lifestyle Changes

Sometimes a financial advisor is a fit for a certain time in your life but can’t grow with you as your life changes. If you have tried to address your asset allocation or rework your budgeting practices and your advisor seems out of their depth with you, it’s okay to seek out a new advisor.

It’s possible your current advisor has a mismatched specialty for your current needs. Switching advisors can help you take charge of your financial planning and meet your new goals.

Frequently Asked Questions

How do I know if it’s time to change my financial advisor?

It’s time to consider changing your financial advisor if you feel they are not meeting your expectations, not providing suitable investment advice, or if you have lost trust in their abilities. It’s important that your provider has a deep understanding of your risk tolerance, short- and long-term goals, and existing assets.

It’s a major red flag if they ignore or continue misunderstanding your intentions after you’ve attempted to level with them.

Should I interview potential financial advisors?

Yes, you should interview potential financial advisors. You can meet them in person, schedule a phone call, or connect virtually. We recommend interviewing potential financial advisors before deciding so you can evaluate their expertise, ask questions about their investment strategies, how they structure their management fees, and understand how they would approach your financial situation.

What information should I provide to a new financial advisor?

To help a new financial advisor understand your financial situation and goals, you should be prepared to provide information about:

  • income
  • expenses
  • assets
  • debts
  • investment preferences
  • financial objectives

Are there any fees or costs associated with changing financial advisors?

Depending on the terms of your agreement with your current advisor, fees or costs may be associated with terminating their services. Additionally, your new financial advisor may have their own fee structure, which you should discuss and clarify before making a final decision.

Final Word

Changing your financial advisor may seem daunting, but it can be a smooth transition with the right approach. Following a few simple steps can ensure you wind up better off in the long run.

First, check with your current firm to understand their transfer process and any associated fees. Ensure you have a copy of your investment records, including the cost basis of taxable securities, so you have all the necessary information before switching advisors.

When terminating your contract with your current advisor, read the fine print and understand any applicable termination fees for the old firm. Once you’ve done that, leave the rest of the work to your new advisor. They will handle the formal transfer of your records and balance, making the process seamless.

Remember, working with a financial advisor is a decision that should be based on your needs and goals. Take the time to research and find an advisor who aligns with your financial objectives.

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