How to Change Financial Advisors
As valuable as your financial advisor is to your life and retirement, he or she can still ruin the relationship to such a degree that you decide to switch and find a new one.
Pillar Wealth Management has served high net worth and ultra-high net worth families for over thirty years. In that time, we’ve heard many stories from clients, some of which were downright horrifying. For those of you with over $5+ million investable assets we suggest you download this in-depth guide before proceeding any further.
Switching financial advisors can be cumbersome, but if it needs to happen, there’s no benefit to delaying. Discover what to look for in a financial advisor so your investment performance and retirement security are as assured as possible. Click the button to request our free comprehensive guide.
As it turns out, people switch advisors all the time, so you’re in good company. 60% of high net worth and ultra-high net worth investors have switched advisors at least once. When you’re dealing with assets from $5 million to $500 million like the clients served by Pillar, you need an advisor you can rely on.
Table of Contents
Let’s take a quick look at why investors switch financial advisors, and how you can ensure your new advisor will be better than the one you’re leaving.
Why do people switch advisors? There is no end to the reasons. Well-known financial advisor Ken Fisher once made offensive comments at a private event. When word of his crudeness leaked out, his firm Fisher Investments lost more than $1.8 billion in managed assets. Ouch.
But an advisor making lewd comments at an industry event is just one of many reasons you might suddenly want to switch to a new wealth manager.
Over time, the client’s needs may change, and they no longer agree with their advisor on the approach to take. Or the advisor is just not available enough and the communication is poor.
Once you’ve signed an agreement with your new advisor, notify the old advisor, in writing, that you are terminating your contract. Work with the new advisor on selling your current holdings.
Refer to your contract for the conditions of termination, which should be fairly simple. You should let the advisor know, in writing, that you want to end the relationship.
Over time, the relationship with the advisor can deteriorate. Disagreements can arise over investment strategies or the client may feel they could get better returns elsewhere.
Terminating a contract with an advisor may result in a termination fee. There are tax implications of selling certain assets, and there may be surrender charges for some funds.
It may be advantageous to invest part of your portfolio with one manager and the rest with someone who has a very different approach. This could reduce your risk.
It is certainly okay to have two advisors, which means benefitting from a diversity of approach and advice regarding your investments. This can also reduce your risk.
Sure, switching financial advisors can entail switching within the same company, unless this is prohibited by your contract. Always read the fine print in any contract.
The process is the same as for your current advisor. Do some research online and read the reviews. Talk to your network; someone you know may make a great recommendation.
Often, the client and the advisor reach a point where they disagree on the best investment approach to take, or the client is dissatisfied with the earnings they are getting.
10 Valid Reasons to Switch Financial Advisors and How to Do It
Here are 10 more reasons:
- Weak Performance
- Your Advisor Doesn’t Listen
- Poor Communication
- Advisor Doesn’t Adapt to Your Changing Situation
- Unreasonably High Costs and Fees
- Lack of Transparency
- Only Calls You to Make Trades
- Simple Personality Clash
- Lack of Trust
- They Just Don’t Care
1. Weak Performance
A consistently under-performing portfolio that isn’t providing for your lifestyle or retirement goals is one of the most common reasons for finding a new financial advisor.
To get better performance, work with an advisor who has a proven process for creating 100% fully customized portfolio plans that ensure as much possible that you achieve all your lifestyle and financial dreams and goals.
Learn about Pillar’s process today. Schedule a free 15 minute call with one of our co-founders, each of whom have over 30 years of experience serving ultra high net worth clients.
2. Your Advisor Doesn’t Listen
But some advisors just keep plowing ahead, because they “know better.” That can get tiring and frustrating, and it becomes a good reason to find an advisor who listens.
3. Poor Communication
If you go months without hearing a thing from your financial advisor, it starts to make you wonder what you’re paying for. You should be hearing from your advisor regularly, either at pre-determined periods of time or with some other arranged expectation.
If you prefer email, they should be emailing you. If you prefer to be called, they should call you. If you like getting paper copies of statements and letters in the mail, meeting in person, doing it all online – your advisor should be able to communicate with you in ways that you prefer.
If it feels like your financial advisor has ‘ghosted’ you, it makes you feel unimportant and not valued. Might be time to switch.
4. Advisor Doesn’t Adapt to Your Changing Situation
Here at Pillar Wealth Management, we like to say that all goals fail, and all plans fail. What we mean by that is, your life situation is always changing, so whatever goals and plans you make when you’re 45 might be obsolete by 55, and again at 65 and 75.
Whatever you’re facing today and have in mind for your future, these things will likely change in five or ten years. Your financial advisor should understand that, and be able to adapt your plan to your new reality so you can continually optimize your performance.
For instance, if you get a sudden windfall from an inheritance, you will need to update your plan. If you get a costly medical diagnosis, or have to care for an aging relative, you will need to update your plan. If you’re making way more money now than you were ten years ago, you need to update your plan.
Note: if your advisor hasn’t updated your plan in ten years…you need a new advisor no matter what! We update every client’s plan every quarter. Talk to us if that’s better service than you’re getting now.
Also, if your income and savings have increased to the point that you’re now in the high net worth or ultra-high net worth affluent class (more than $1 million in liquid assets), you should have a financial advisor who specializes in that category of investment planning. Pillar serves clients with $5 million to $500 million.
Ultra High Net Worth Alert:
Having an experienced wealth management team is super-critical for those in the ultra high net worth class. Your financial advisor may have handled your high net worth portfolio adequately, but can they adapt as you get closer to or surpass $30 million and enter ultra-high net worth status?
If your financial advisor has little to no experience or understanding of your new status, you may not get the service you will need.
You can learn how to protect your wealth as an ultra high net worth investor by requesting our free guide .
5. Unreasonably High Costs and Fees
Many financial advisors charge around 1% to manage your liquid investment assets. However, there are many other costs and fees they may or may not tell you about (or even know about in some cases due to inexperience or apathy) that can eat away at your investment performance.
You need to look into this, because you could be losing tens or hundreds of thousands per year from these costs, depending on the size of your portfolio. Here are six reasons you might be losing money with your current financial advisor.
6. Lack of Transparency
Haven’t gotten reports for a while? Can’t get answers to simple questions you have a right to know? Aren’t getting any explanations despite persistent requests?
An advisor who can’t be up front about what’s going on with your money is an advisor who probably shouldn’t be managing your money. What are they hiding?
Transparency is crucial to building a trusting relationship with your wealth management team. If you’re looking for a transparent, reliable financial advisor, Pillar Wealth Management is ready to speak with you about your financial goals.
7. Only Calls You to Make Trades
With some financial advisors, you only hear from them when they want to get your approval for buying or selling investments. This is a huge red flag, for many reasons.
First, it implies that they get commissions based on these trades. Second, even if they don’t, this kind of behavior tends to be fairly reckless, and it very likely does not serve your long term financial goals.
Third and most important, you are paying higher capital gains taxes (way higher at the time of this writing – 37% vs 20%!) if your financial advisor is constantly wheeling and dealing. You don’t want an advisor always going after what they believe are the ‘hot’ new equities or funds.
That’s not how you protect your wealth beyond your lifetime.
This kind of active investing approach almost never outperforms the market or advisors like Pillar Wealth Management that use a strategic approach to investing, not an overly active one.
Fourth, why do they only call to make trades? Shouldn’t they also be keeping up on how you’re doing, how your life situation has changed, and if your goals and plan need to be updated? What is their reason for making all these trades in the first place?
8. Simple Personality Clash
If you grit your teeth and furrow your brow every time you talk with your financial advisor, and have a weird feeling of tepid relief inside when you hang up the phone, that might be an indication that the two of you just don’t mesh very well.
It’s good to get along with the person who manages millions of dollars for you.
See if you get along with us. Schedule a quick introductory call with one of our co-founders, each of whom have over 30 years of experience serving ultra high net worth investors.
9. Lack of Trust
Maintaining trust is fundamental to any relationship. Being that many financial advisors work with the same people for decades, if you lose trust in them for any reason, that can be hard to repair.
10. They Just Don’t Care
Many of these reasons for wanting to switch financial advisors can be summed up in this simple phrase: They just don’t seem to care.
Why don’t they call you back? You must not be that important. Why aren’t they giving you answers to meaningful questions? Either they don’t know or don’t have the time.
Feeling like your advisor doesn’t care can be perception, reality, or both. No matter what the cause, it is their fault for not keeping the relationship strong.
Switching Financial Advisors
If you do decide to switch financial advisors, you can do it the hard way or the mostly easy way. We will explain the difference in a moment.
How to Switch Financial Advisors?
Once you decide to make a switch. inform your advisor and keep communication lines open to make switching easier. You will terminate one contract and start another with the new firm. The paperwork should be minimal.
But first, here are the main issues you will need to consider when switching:
1. Check the Fees
Be prepared before switching advisors. See if you have to pay a termination fee and how much it will cost. If you have to sell assets as part of the transfer, you will incur capital gains taxes. There may be withdrawal penalties.
Some investment agreements include a termination fee. See if you have to pay one and how much it will cost. Also, many advisors are fee based. Find out if they will prorate their fees.
Be sure that the total fees you are paying are reasonable. Remember to include such fees as the internal expenses of the underlying investments, the costs of trading, any commissions, and don’t leave out the estimated taxes and if they might be short or long term gains taxes.
2. Get Copies of Everything You Need
Get all your statements and tax records for as many years as you can. And make sure you have the cost basis for any investments, because if you end up having to sell anything as part of the transfer, you will incur capital gains taxes.
3. Find Out if Any Investments are Proprietary
Why might you need to sell as part of a transfer? There are several possible reasons, one of them being that your previous financial advisor’s company offers proprietary investments available only through them. So if you leave, you’d have to sell them and start new investments with your new advisor.
You can look at this as a positive change, however. Since you are clearly unhappy with something about your previous advisor, giving your new advisor the chance to refresh and revise your portfolio plan is probably a wise move. It probably needs to be updated.
If you need to open some new accounts as a result of having to sell, this too can be a positive change because it gives you a fresh start and many times it is a good opportunity for consolidation or scattered accounts.
When you switch to Pillar Wealth Management, we manage this entire process, and it is not at all burdensome on you, even though it may sound like it.
4. Check the Tax Consequences
Incurring capital gains taxes is probably the most likely tax consequence. But there could also be early withdrawal penalties or other taxes depending on what you have to extricate yourself from to switch to a new financial advisor.
It’s also possible you won’t owe any taxes. If your previous advisor was managing your investments through a custodian such as Fidelity or Schwab, that can be signed over to your new advisor without triggering any taxes.
5. Inform Your Advisor You Plan to Switch
This is just common courtesy. You don’t want to be ‘ghosted’ by your advisor. So don’t ghost them either. Plus, keeping communication lines open will make switching to the new advisor easier.
How Much Paperwork Is Involved in Switching Advisors?
Generally the paperwork is fairly minimal. After all is said and done, you will likely just have to sign a few forms. And here is where we see the difference between the ‘hard way’ and the ‘mostly easy way’ to switch financial advisors alluded to earlier.
The hard way is to do all of the above tasks by yourself. It will require quite a bit of effort on your part to sort all this out.
The mostly easy way – the way it will work if you switch to Pillar Wealth Management – is to have us do it all for you. Consolidating scattered accounts, switching money from one advisor to another, closing and opening accounts, streamlining automatic payments and deposits, dealing with the taxes and all the rest is something we offer at no extra charge to all our new clients.
We make it easy.
Yes, you should expect to sign a few forms, including the use of DocuSign if you are comfortable with it, but we will do the heavy lifting of getting all your documents and records and making sure the previous advisor has done everything they need to do.
How Long Does It Take to Switch Financial Advisors?
This can vary greatly depending on the complexity. But in most cases, the process can be done in as little as one to three weeks.
How Do I Find a Better Financial Advisor than the One I’m Leaving?
That, of course, is the $6 million dollar question (literally, if you’re a high net worth investor).
Pillar Wealth Management has produced a free guide for exactly this purpose, which includes the best advice for choosing a financial advisor for investors with $5 – $500 million liquid assets.
It will walk you through the costly mistakes people have made by choosing the wrong advisor, and all the most crucial things you must consider when making this life-altering choice. You will learn about hidden costs, the truth about risk tolerance, what big banks, brokers, and wire houses won’t tell you, the perils of active management, and so much more.
The hidden costs of changing financial advisors involve tax implications, fees, and surrender charges. Of course, any advisor does their best to minimize these consequences.
1.Tax implications of switching financial advisors
Firstly, as you know, when you sell an asset and you have made a gain, you are required to pay capital gains tax, and the gain will be taxed as ordinary income if the sale occurs within one year of purchase. Each transaction that is required to transfer your assets to a new advisor can thus result in an increase in your tax bill. This could be substantial in you are holding a large number of assets. Typically, selling retirement accounts does not incur taxes.
2. Transaction fees
Secondly, each transaction may incur a fee, depending on the trading platform and the type of asset being sold. Your advisor may charge you a termination fee (which should be in your contract). You can request that your new advisor reimburse you for the termination fee.
3. Surrender charges and back-end load
Thirdly, if you are selling an annuity, there is likely to be a surrender charge, as high as 10%. Similarly, selling a mutual fund can incur a back-end fee.
You should talk to your new advisor about which assets to sell and when to sell them.
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