10 Reasons People Switch Financial Advisors, and How to Do It
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 somewhere else in the San Francisco Bay Area.
As it turns out, people switch advisors all the time, especially high net worth and ultra-high net worth investors, 60% of whom have switched advisors at least once.
The recent reported outflow of cash Ken Fisher’s firm has suffered due to his offensive comments while speaking at a private event has already led to Fisher Investments losing $1.8 billion in managed assets at the time of this writing. 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.
Here are a few more reasons:
A consistently underperforming portfolio that isn’t providing for your lifestyle or retirement goals is one of the most common reasons for finding a new financial advisor.
You have questions. You have concerns. You want explanations. It’s your money, so you have every right to get the service you need. 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 someone who listens.
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.
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 have in mind now for your future, you will likely have something different in mind in five or ten years. Whatever you’re facing today, you’ll be facing something different in five or ten years. Your financial advisor should understand that, and be able to adapt your plan to your new reality.
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.
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. This is what a wealth manager does, and it is one way we are distinct from common financial advisors.
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 costs you might be paying with your current financial advisor.
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?
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 – 37% vs 20%!) if your financial advisor is constantly wheeling and dealing, going after what they believe are the ‘hot’ new equities or funds. 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?
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.
Lack of Trust
Maintaining trust is fundamental to any relationship.
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.
How to Switch 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.
But first, here are the main issues you will need to consider when switching:
Check the Fees
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.
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.
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.
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.
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, called The Ultimate Guide for Choosing the Best Financial Advisor for Investors with $3M – $70 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.