Signs it is Time to Transition to a New Financial Advisor
Transitioning away from an existing financial advisor may feel intimidating, especially if you or your spouse have a longstanding relationship with your existing advisor. However, there are strong reasons to consider a transition away from your existing advisor, particularly if your needs changed or the advisor is no longer positioned to meet those needs. It can also feel tempting to maintain the relationship if you are concerned about the time commitment associated with finding a new advisor, but you need to do what is best for you and your family. Together, we shall explore signs it is time to consider hiring a new advisor, considerations prior to making a change, and the process of making a change.
Key Signs a Transition in Your Advisory Relationship is Prudent
While there are a myriad of reasons a new advisory relationship may prove edifying for you, several of the most common reasons to transition include:
A Change in Financial Circumstances – if your financial life became more complex due to a liquidity event, a significant windfall, consistent savings over time, or a change in family dynamics, reevaluating your financial service provider is often wise. Not all advisors possess the skill set to serve a client with growing complexity. Conversely, if you experience a negative financial event, finding an advisor who specializes in serving clients with a challenging financial path forward relative to an advisor specializing in serving high-net-worth clients is prudent.
A Lack of Responsiveness – a common complaint amongst investors is that their advisor takes weeks to respond to them and is not proactive about scheduling periodic financial planning sessions. If your advisor is not actively seeking to meet with you at least once or twice per year, it could behoove you to explore alternative options. Additionally, if it is taking more than 48-72 hours for your advisor to respond to you on as needs arise, that is also a telltale sign reevaluating the relationship is prudent since you may not be a priority for them.
Lack of Transparency Regarding Fees – if your advisor is constantly seeking to sell you products, leads you to believe you are not paying any fees, or is not transparent about how they are compensated, evaluating an alternative advisor would likely serve you well.
Company Turnover – if you are investing your assets with a company at which there is material turnover of advisors, client service professionals, and other team members, you may need to evaluate the health of the organization and to consider a transition.
Moving to a Different State – while Zoom and Teams make it simpler to remain connected to an advisor when you move to a new state, you may prefer a more personalized touch. Some advisors will fly or drive to visit with you even after you move, but there are cases in which you may wish to make a change because an advisor will only meet virtually with you after you move. Many people are comfortable with a virtual relationship, but it is not the right fit for everyone.
Retirement of an Advisor – with the advisor base aging, many investors are sensing their advisor is slowing down toward retirement or potentially weighing a sale of the business internally or externally. The transition of your trusted advisor away from the business is often an excellent time to reevaluate the relationship, especially if you are not comfortable with the values or service offering of their successors.
A Lack of Services – if your advisor is not offering financial planning in addition to investment management support, you likely are not receiving the advice you need to position your finances well. Locating an advisor who will support all of your financial needs is of paramount importance.
Values Fit – your advisor may not have the same values about how to invest your money or with respect to the financial decisions you make. Sometimes, a lack of values alignment can lead to an adversarial relationship or a relationship in which you feel your concerns are not heard. While a diversity of thought is often edifying, if you are not feeling heard by your advisor, a change is potentially required.
Considerations Prior to Making a Change
As you prospectively hire a new financial advisor, you do need to consider several factors prior to exiting the existing relationship:
Tax Consequences – there are prospectively tax consequences associated with liquidating accounts or transferring accounts to a new advisor. You should speak with the prospective advisors you interview to understand how they would manage the tax consequences of the transition.
Whether to Work with a New Advisor or Self-Direct – you may also wish to consider if you need a financial advisor or whether you might prefer to manage your personal finances yourself. While some investors feel comfortable managing their own investments, there are considerations regarding taxes, estate planning, optimal distributions from investment accounts, and longer-term retirement forecasting which are challenging to address on your own.
Timing – changing to a new advisor in the midst of the holidays or in the midst of tax season can prove challenging, so you may wish to make a change during a less busy time of year, such as during the late spring, summer, January, or early fall when financial planners are less busy.
Type of Advisor Sought – additionally, you will likely wish to evaluate the type of advisor you wish to hire. Here are several questions to ask yourself before making a change:
Would you appreciate someone who can help you with annuities and permanent insurance?
Alternatively, is it important to you that your advisor is “fee-only,” meaning they are not compensated for selling you any products? A fee-only relationship reduces conflicts of interest.
Do you want the advisor to manage your investments for you and to provide financial planning? Or are you seeking an advisor who would strictly provide financial planning services to you?
Does geography matter to you? Or are you comfortable working with the best advisor you can find to meet your needs?
Are the values (shared faith beliefs, political views, lifestyle) of your advisor important to you?
Process of Transitioning Advisors
Once you interview two – three advisors and select the advisor with whom you feel most comfortable working, the transfer process from your existing advisor is reasonably straightforward. It is important for your new advisor to explain the process to you carefully, including the timeline and resolution process if any issues arise. Unless you have private equity or insurance products, the process of transferring your accounts to a new advisor’s management is typically fairly straightforward, involving the following steps:
Download Data from Existing Advisor – if your existing advisor gives you access to a secure file sharing vault or shares documents with you via some other means, it is wise to download the documentation and to share it with your new advisor. You typically do not need to alert the advisor from whom you are transitioning during this phase when you are gathering data.
Complete Transfer Approvals – next, you will typically initiate the transfer of account paperwork to move accounts to the new advisory firm. Most transfers are resolved electronically via digital approvals or DocuSign and shares typically transfer electronically after you validate the transfer approvals. Often, the transfer process only takes 7-10 days to complete. If you are certain you will leave your prior advisor, completing the transfer of account approvals before sending a letter of termination is often the appropriate step to communicate the finality of your decision. Sometimes, your prior advisor will try to convince you to stay, but the fact that the transfer paperwork is already in process can communicate you are not changing your mind.
Send Letter of Termination – as you transition away from your existing advisor, it is generally best practice to send them a brief email or letter to indicate you are terminating the advisor relationship. The letter typically follows a format similar to the following:
Dear [Previous Advisor],
We wanted to take a moment to express our sincere gratitude for all the guidance and support you provided over the years. You have played an integral role in helping us reach this point in our financial journey, and we are deeply appreciative of your dedication and care. As we look ahead to the next phase of our lives, we’ve come to realize that our needs and goals have shifted.
We have decided to move in a different direction to align with our evolving needs. This has not been an easy decision nor is it one that we take lightly. We value the work we’ve done together and the trust we’ve built. We will be transferring our investments to a new advisor as part of this transition. Thank you once again for everything. We wish you continued success.
**Request a Refund of Fees – if your prior advisor bills your accounts in advance for the month or quarter, consider inserting verbiage to your termination letter requesting that any unearned fees be refunded to you. Generally, the fees are refunded to your accounts before they transfer to the new advisor or the legacy advisor will send you a check. Notably, if your accounts are billed in arrears, you may need to pay a final fee to your legacy advisor for earned but unbilled fees.
Warm regards, [Client]
Once the three step transfer process is completed, you generally will not need to take any further action with respect to the transition away from the prior advisor. You may need to contact the prior advisor for tax documents at tax time, but the contact should be minimal thereafter. If your prior advisor seeks to dissuade you from making the transfer, a simple “Thank you for all of your kind support, but we feel confident making this transition” will suffice.
Changing your financial services provider can feel like an intimidating process; however, it is simpler than many think. Once you determine a service provider no longer fits your needs and locate a new advisor well-suited for you, the new financial advisor should make the process simple for you. Longer-term, the change will pay dividends for you if you locate an advisor who is transparent, professional, knowledgeable, responsive, and compensated fairly for the service they provide to you.
Author:
Justin Reede, CFP®, CKA®
Disclosure: The investment returns of investment securities are subject to various risks and are not guaranteed. Consult with an investment advisor representative for formal investment advice. For tax compliance advice, we recommend you consult with a CPA or Enrolled Agent. For legal advice, we recommend you consult with legal counsel. This blog post should not be considered investment or tax advice.