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Switching Financial Advisors? Here's What You Need to Know

By Maurie Backman – May 14, 2017 at 6:42AM

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Not happy with your current advisor? Then it's time to move on. Here's what that process might look like.

The right financial advisor can help you establish your goals and develop a long-term savings plan that lets you achieve them. But what happens when you grow dissatisfied with the service you're getting from your advisor?

There are plenty of good reasons to switch financial advisors. Simply not trusting yours is a big one, but others include unusually high fees, a glaring lack of transparency, and a general sense that your advisor just doesn't care all that much about you. If you're planning to get a new financial advisor, here are a few things you should know.

Meeting with a financial advisor


1. You'll need to come clean with your old advisor

Though your new advisor can, and should, initiate whatever transfers are needed to move your assets over, it helps to be open and up front with your former advisor so that he or she is more inclined to cooperate. This isn't to say that your old advisor has any right to hold your assets hostage, but if you terminate the relationship on a more positive note, the process will likely go more smoothly.

That said, some advisor agreements include a termination fee. If this applies to you, then that's something you'll need to be prepared for.

2. Transferring your assets might take time -- and cost money

The amount of time it takes to move your assets over will depend on the actual investments you're holding in your account. Now if the investments in your old account are being held by a third party, they won't need to move over at all. Rather, you'll simply need to update your permissions, so to speak, so that your new advisor is authorized to manage those assets accordingly.

Keep in mind that if your old account includes proprietary investments (meaning, investments offered solely by your advisor or his or her firm), liquidating those assets and transferring over the proceeds could take weeks or even months. You might also incur transfer fees for moving those assets over -- though your original advisor will have been required to disclose those fees to you up front.

Along these lines, some investments come with holding period requirements, and if you cash them out before those periods end, you might incur fees. Again, this is information you'll be able to get at by reviewing your investment agreements and documentation, and if you do so before switching advisors, there shouldn't be too many unpleasant surprises.

3. Moving your assets could subject you to taxes

Sometimes, moving assets from one advisor to another means liquidating an existing account and selling the investments contained therein. But unless you're dealing with a retirement account, selling off assets could trigger capital gains, which you'll need to pay for the tax year in which the sale is made. Be sure to discuss the tax-related consequences of shifting your assets with your new advisor so you know what to expect.

4. You should be prepared to start over

It might be the case that your old advisor recommended certain investments or strategies that your new advisor doesn't believe in. (Or your old advisor might've specifically chosen investments that gave him or her the largest commission.) While you might choose to retain some of the investments your former advisor suggested, you should use this as an opportunity to start fresh and reassess your goals. It could be that since switching advisors, your household income has increased or your appetite for risk has shifted in either direction. These are the sorts of factors that will influence your new financial plan, so don't be put off if your new advisor insists on starting completely from scratch.

While finding a trustworthy advisor is easier said than done, if you've had it with your old advisor, it's time to move on and go elsewhere. Ideally, your new advisor will be someone who discloses his or her fees from the start so there are no surprises, is up front about risk, and doesn't judge you for the decisions or mistakes you've made. It also pays to ask if your advisor adheres to the fiduciary standard, which means that he or she is required to act in your best interests at all times, even if it means forgoing commissions in the process.

Don't be afraid to interview potential replacement advisors extensively and ask all the questions you want. If all goes well, this will be the person tasked with managing your money for many years to come, and unless you want to go through the process of switching advisors yet again, it pays to be as thorough as possible.

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