When considering how to change financial advisors, it’s common to feel a mix of uncertainty and curiosity about the process. Whether your current advisor no longer aligns with your goals or you want a fresh perspective on your investments, switching can be straightforward if approached carefully. Start by reviewing your current advisor’s contract to understand any restrictions or fees involved, and then identify what you want from a new advisor. Finding a financial advisor who matches your needs can help you make a smooth transition and maintain your financial plans without interruption.
If you’re looking to hire a financial advisor, but don’t know where to start your search, try SmartAsset’s free tool and speak with your financial advisor matches today.
Good Reasons for Switching Financial Advisors
There are plenty of good reasons for wanting to make a change. Shanna Tingom, a financial advisor with Heritage Financial Strategies in Gilbert, Arizona, offers these three: your advisor is inaccessible, gives unclear and jargon-filled answers or doesn’t follow through.
“Your advisor should be willing to talk to you and help you understand your investments and strategy,” Tingom says. “You should know what he or she thinks about the market and economy and how they may impact your investments. If you walk away from a conversation feeling more confused than comforted, you may have the wrong advisor.”
She notes that messages get lost and people can make mistakes. Still, your advisor should be responding to your emails or calls and doing what they say they will do. If not, she adds, “this could be a sign they have too many clients or an inadequate process in their office — this isn’t someone you want managing your money.”
Steve Lockshin, founder and principal of Los Angeles-based AdvicePeriod, adds this reason: you find out your advisor didn’t disclose a conflict of interest. “Your best interest should be your advisor’s top priority,” Lockshin explains. “Undisclosed conflicts of interest are clear signs that your advisor is more interested in his or her pocketbook than in yours.”
Lockshin, author of “Get Wise to Your Advisor,” also believes that you shouldn’t give management of your money to someone who thinks they are smarter than the market or who charges a premium for commodity services. “The data has demonstrated that most active funds and managers underperform the markets,” he notes. Also, thanks to robo-advisors that have driven costs down, “access to asset allocation and fund selection is extremely inexpensive.”
Bad Reasons for Switching Financial Advisors
Still, it is possible to want to change advisors for a bad reason. Perhaps the new advisor is your golf buddy. Or maybe he or she can get you access to an exclusive investment or to a proprietary system that can outperform the market.
“These are all common sales techniques,” Lockshin says. If one of them is your reason for switching, you should reconsider.
Another reason that should give you pause: you don’t feel the return you’ve been getting is good enough. You could be right, but make sure you are comparing your return to the appropriate index. “Not to what you’re hearing on the news or what your brother-in-law tells you he’s gotten in penny-stock returns,” Tingom says. “Compare apples to apples and have a long-term focus.”
Tingom also thinks that moving out of state doesn’t have to be a reason for changing advisors. “In today’s connected world, you and your advisor can have a successful relationship as long as they are licensed in your state and embrace technology like screen-sharing apps that allow you to look at the same screens and even share video,” she says.
Finding a New Advisor Is the First Step
Before you fire the old advisor, you need to line up the new one. This is because once you deliver the bad news, you don’t want to keep the old advisor in a holding pattern. You want him or her to hand off your assets to the new advisor promptly. Also, by having a new advisor, you can rely on that professional’s help and know-how in transferring investments, which can be complicated – and unnecessarily costly if gains are realized as a result of exits made.
How to ensure that the new advisor becomes your long-time advisor? Tingom advises making sure he or she is more interested in you than in how much money you have to invest. She also says to look up the person in Brokercheck to see how long he or she has been in the industry (the longer, the better), how many firms he or she has worked for (many is a red flag) and if he or she has any disclosure events such as complaints or financial wrongdoing.
Lockshin’s checklist has three non-negotiables. The advisor should:
- Have no economic conflicts of interest (beyond the fee relationship)
- Use technology to increase transparency and reduce friction/effort in order to keep fees low
- Prefer simplicity over complexity and not believe he or she is smarter than the markets
What Is the Cost of Changing Financial Advisors?
The cost of changing financial advisors can vary depending on your current arrangement. Some advisors or firms may impose exit fees, particularly if your assets are held in proprietary products or accounts that carry early termination penalties. If you have a fee-based agreement, you might face prorated charges for ending services mid-contract. Transfer fees may also apply if you’re moving assets from one brokerage firm to another.
These charges are often relatively modest, but they can add up depending on the number of accounts being transferred. It’s also worth considering potential tax implications if your investments are liquidated during the transfer. Reviewing your current advisor’s terms and any account agreements will help you understand the specific costs involved in making a switch.
Your contract with your advisor has a termination clause, which you probably didn’t read closely when you signed. On the bright side, Lockshin says that “most contracts are terminable with short notice. This is one area where the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have done a decent job.”
Still, you’ll want to read the contract carefully to know what the fees are for closing your account. Also, you want to know how management fees are calculated if you are closing mid-quarter. Additionally, you should read your last statement to see if you have any proprietary investments or annuities that can’t be transferred or funds that have exit fees (e.g., B-shares of mutual funds).
This is where the new advisor can step in. Lockshin recommends having the new one as well as the old one “outline any illiquidity or transfer restrictions or costs to transfer before creating any negative outcomes from taxes or fees.”
That said, most investments can transfer “in kind” within one to four weeks.
How to Tell Your Financial Advisor You Are Transferring
Since most of us are confrontation-averse, this last step is probably the hardest – but it doesn’t have to be. You could just let your new advisor put in the paperwork for a transfer, but Tingom recommends sending an email to the old advisor.
“Make it short and to the point,” she says. “Once you’ve made the decision, there’s no point in rehashing old frustrations.” They may try to contact you – by law, they can call you one more time after being notified. “But you are not under any obligation to answer or talk to them if you don’t want to,” she adds.
Lockshin, on the other hand, advises picking up the phone (unless you were treated unfairly) and then following up with a letter or email. “I prefer to treat people the way I want to be treated,” he explains. “Thank the advisor for their service, then tell them the truth. You found a new advisor whose approach aligns better with your philosophy – or who has no conflicts of interest, who is more technologically oriented or who uses lower cost/more tax-efficient investments. These are all good reasons for a move and irrefutable.”
Lockshin adds that if the advisor plays the “friend card,” then he or she is not a true friend if leaving will harm your relationship.
Finally, resist the urge to say you’re sorry. “You should never have to apologize for taking care of your own money,” Lockshin says. “You should always do what you feel is in your best interest.”
Bottom Line
Switching financial advisors doesn’t have to be hard. Just break it down into three manageable steps: find a new advisor, figure out what expenses the move will incur and then call or email the old advisor to notify them of the change. Your new advisor, once chosen, can help get everything transferred over. Not many people enjoy breaking it off with a former advisor but it can be a very easy and painless process if you just rip off the Band-Aid and find the right advisor moving forward.
Tips for Finding a Financial Advisor
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Be sure to ask candidates the right questions, including whether they are a fiduciary or not. This means they will put your interests before theirs or their firm’s. Also, they’ll act in good faith, provide all relevant information and disclose – if not avoid – all conflicts of interest. Fiduciaries can be held financially and civilly responsible for not putting your interests above everything else. On the other hand, non-fiduciary advisors are only obligated to provide suitable recommendations.
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