When You Know It’s Time And How To Make The Switch

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

Chances are, you launched into a new advisor relationship with high hopes of wealth and financial independence. But if your wealth progress slows or communication with your advisor drops off, a breakup may be in your future.

That breakup can be a stressful one. And you can incur financial costs in the process. So it’s not a move to make until you’re certain 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 Change Financial Advisors

There are many reasons why the partnership with your investment adviser can go sideways. Most of those 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 regularly. 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. 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 during those touch points is critical. It’s problematic if you don’t feel comfortable sharing concerns with your advisor, or you don’t feel your advisor listens and responds appropriately.

The relationship should be dynamic and fluid. After all, financial goals can evolve. Your advisor must be willing to talk through your changing needs, provide professional feedback, and adjust your plan if necessary. This doesn’t mean your advisor agrees with everything you say — but he or she should always be open to a constructive debate. If that’s not the case, you may do better with someone else.

2. Surprise Fees

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

Know that there are times when the fees will outpace investment returns. This doesn’t automatically mean your advisor isn’t performing. If the entire stock market is down, for example, you’ll likely see negative returns in your account — no matter how savvy your advisor is.

Trouble arises, though, when the fees are much higher or more frequent than you expect. If you asked the advisor initially to outline the fee structure and then experience something very different, start asking questions. Do the same if the market is strong, but your performance net of fees is flat.

3. Incompatible Trading Philosophy

Some advisors are market timers 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. Whatever approach you prefer, your advisor must share the same view. If there’s a conflict on the fundamental investment approach, a breakup is imminent.

4. Disappointing Results

Your personal finances should improve under your advisor’s guidance. If that’s not happening, identify the source of the problem. It could 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 continue to fall short, then you might be ready for someone new.
  • Your advisor isn’t providing the guidance you need. You might be working with an investment specialist when you really need broader financial advice. Perhaps help with budgeting or paying down debt could help you allocate funds for investing, for example. In that case, a certified financial planner or chartered financial consultant might be a better fit than an investment specialist.

FAQs About Changing Financial Advisors

If you recognized any of the red flags above, you may already be asking some high-level questions about how an advisor switch would work. 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 move may be governed by contract language that you agreed to when you first retained the advisor.

2. Do I Have to Cash Out My Investments?

Generally, you can move to a new advisor without cashing out your investments. There are exceptions, though. You would have to sell any funds or assets that your new firm cannot support. You may own certain share classes that are proprietary to your old firm, for example. Or you may own assets that fall outside your new advisor’s scope — such as leveraged or inverse funds.

Your new advisor can review your statements and identify any positions that cannot be transferred in kind.

3. What Does it Cost to Change Advisors?

The costs of replacing your advisor vary dramatically from one situation to the next. Some advisors, for example, may charge termination fees. On top of those, you might also incur costs from selling assets that cannot be transferred. Those costs can include realized losses and redemption fees.

4. How Long Does it Take to Change Advisors?

Once you have selected a new advisor, you can usually complete the asset transfer within two or three weeks.

5. How Do I Tell My Old Financial Advisor I’m Moving?

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

  • Be forthright. Your messaging can be as simple as, “I’ve decided to move to a different advisor, because…” Hopefully, the old advisor will take the news professionally — and appreciate that you’ve explained why.
  • Or, let your new advisor do the talking. If your new advisor is amenable, you don’t have to tell your old financial advisor anything. Fill out the paperwork and have your new advisor manage the asset transfer. Your old advisor or the firm may reach out and ask for feedback, but you’re not obligated 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 you have with your old advisor. You’re looking for any rules that govern how and when you can leave the firm and move your investment accounts. You might have to give notice, for example, or pay termination fees.

2. Find a New Advisor

Finding a new financial advisor can take months. Take your time identifying the right person, who offers the right products and services. Learn from what went wrong with the old advisor, 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 purchase date of all assets. Note that this information should flow through to your new account if you transfer assets in kind. But it never hurts to have a backup. You’ll need your asset purchase history to report gains and losses on your tax returns.

4. Consult with Your New Advisor

Ask your new advisor to review your account statements and identify any assets that are proprietary to the old firm or otherwise not transferable. You’ll have to sell these and transfer them as cash. Estimate any costs you’ll incur in that process.

5. Break the News to Your Old Advisor (or Not)

Ask your old financial advisor if any of the nontransferable 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 you’re telling the advisor you’re leaving. Or, if you prefer, position your questions as fact-finding. You might say you’re 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 transfer. As noted, transferable assets will move over as is. Nontransferable assets will be liquidated and moved over in cash. The transfer usually takes less than three weeks.

To a Brighter, Wealthier Future

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


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