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

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

Chances are you entered a new consulting relationship with high hopes for wealth and financial independence. But if your fortunes slow down or you lose communication with your advisor, a breakup could be in your future.

This breakup can be stressful. And you may incur financial costs. So it is not a step until you are sure that another consultant can serve you better.

Find out when it’s time to switch financial advisors, including answers to frequently asked questions and a step-by-step guide to transferring your wealth.

When to switch financial advisors

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

1. Bad communication

When communicating with your advisor, pay attention to the frequency and quality of your conversations. You should regularly exchange information with your advisor. You can expect at least one annual financial review. Quarterly check-in is ideal, even if it’s just a quick phone call. Additionally, 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 at these touchpoints is crucial. It’s problematic when you don’t feel comfortable sharing concerns with your advisor, or when you feel your advisor isn’t listening and responding appropriately.

The relationship should be dynamic and fluid. Finally, financial goals can evolve. Your advisor must be willing to discuss your changing needs, provide professional feedback, and adjust your plan as needed. That doesn’t mean your advisor agrees with everything you say – but he or she should always be open to constructive discussion. If that’s not the case, maybe you can do better with someone else.

2. Surprise Fees

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

Note that there are times when fees exceed investment returns. This does not automatically mean that your consultant is not performing. For example, if the entire stock market is down, no matter how savvy your advisor is, you’re likely to see negative returns on your account.

However, problems arise when the fees are much higher or more frequent than you expect. When you first asked the advisor to outline the fee structure and then experience something completely different, start asking questions. Do the same when the market is strong but your performance minus fees is flat.

3. Incompatible trading philosophy

Some advisors are market timers who trade frequently to make short-term profits. Others play the long game, picking quality stocks that will appreciate in value over years or decades. Whichever approach you prefer, your advisor must share the same view. If there is a conflict about the fundamental investment approach, there is a risk of dissolution.

4. Disappointing results

Your personal finances should improve under the guidance of your advisor. If not, determine the cause of the problem. It could be:

  • The stock market is down. Unless your advisor has promised otherwise, you can rest assured that your account performance will follow stock market trends. Ask your advisor to help you set expectations for the current market climate. If results continue to fall short, you might be ready for someone new.
  • Your advisor is not providing the guidance you need. You may work with an investment professional if you really need more comprehensive financial advice. For example, maybe help with budgeting or paying off debt could help you allocate funds for investments. In this case, a certified financial planner or chartered financial consultant may be more appropriate than an investment professional.

FAQs on changing financial advisors

If you spotted any of the red flags above, you may already be asking some general questions about how an advisor change would work. Five frequently asked questions are answered below.

1. Can I switch financial advisors?

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

2. Do I have to cash out my investments?

In general, you can switch to a new advisor without having to cash out your investments. However, there are exceptions. You would have to sell any funds or assets that your new company cannot support. For example, you may own certain classes of shares owned by your old company. Or you may own assets that are outside your new adviser’s purview – such as: B. leveraged or inverse funds.

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

3. How much does a change of advisor cost?

The cost of replacing your advisor varies greatly from one situation to the next. For example, some advisors may charge termination fees. You may also incur costs from the sale of non-transferable assets. These costs may include realized losses and exit charges.

4. How long does it take to change advisors?

After you have decided on a new advisor, you can usually complete the asset transfer within two to 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 open. Your message can be as simple as, “I’ve decided to switch to another advisor because…” Hopefully, the old advisor takes the news professionally — and appreciates you’ve explained why.
  • Or let your new advisor do the talking. If your new advisor is accessible, you don’t have to tell your old financial advisor. Complete the paperwork and let your new advisor manage the wealth transfer. Your old advisor or the company can contact you and ask for feedback, but you are not obliged to do so.

How to change financial advisor step by step

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

1. Read your agreement with the old advisor

Read the contract you have with your old advisor. They are looking for rules governing how and when you can leave the firm and move your investment accounts. For example, you may need to cancel or pay cancellation fees.

2. Find a new consultant

Finding a new financial advisor can take months. Take the time to find the right person offering the right products and services. Learn from what went wrong with the old guide 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 into your new account if you transfer assets. But it never hurts to have a backup. You need your wealth purchase history to report gains and losses on your tax returns.

4. Contact your new advisor

Ask your new advisor to review your bank statements and identify any assets owned by the old company or otherwise non-transferable. You must sell these and transfer them as cash. Estimate any costs you will incur in this process.

5. Break the news to your old advisor (or not)

Ask your old financial adviser if there are any minimum holding periods or exit charges for non-transferable assets. If so, ask your advisor to estimate the fees that may apply.

You can have this conversation while telling the counselor that you are 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 previously mentioned, transferable assets will be transferred unaltered. Non-transferable assets will be liquidated and transferred in cash. The transfer usually takes less than three weeks.

To a better, more prosperous future

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

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