The time has come to say goodbye. Even though you’ve been together for years, you no longer feel comfortable even talking. They just don’t understand your situation and aren’t meeting your needs. You’ve been in this relationship for a while, but it needs to come to an end.
Breakups aren’t just for romantic partners. Believe it or not, switching financial advisors can be an ordeal as well. It’s more complicated than saying, “Adios,” and walking out the door. There can be service fees, potential tax liabilities and a bunch of new paperwork.
There’s also the mental barrier to break through — you may have been with your first financial advisor for what feels like forever. They probably got you started with your personal finances — helping you set up your retirement accounts, getting you signed up for life insurance and answering questions you had about the whole process.
But as with any bad relationship, you may have decided it’s time for a change.
We’re here to walk you through the process of leaving your financial advisor once you decide they’re no longer meeting your needs.
Why Do You Want to Leave
You’re not alone in wanting to switch financial advisors. A 2015 poll showed that 60% of super-high-income earners and 51% of mid-range-income earners switch financial advisors at least once.
Mixing it up can be a good thing. Your finances and your life change over time. You want an advisor who meets your needs as your life changes. Someone who was perfect when you were 23 may not be the right person when you’re 43.
You might be stuck with an advisor who charges high fees or one who doesn’t serve your lifestyle, or just one that you don’t feel comfortable with. You financial advisor is your choice — it should be someone you like, you feel comfortable talking to and you can afford.
How to Leave
Depending on the company or firm you’re with, your leaving experience may look different from other people’s. With some firms, all you need to do is put in writing that you want to leave, and that the relationship is dissolved. With others, things like annual service fees or termination fees might need to be negotiated or flat-out paid.
Here are some things to think about, and steps to take, as you make the switch.
- Before you leave, review any paperwork or contracts you have signed. There’s probably information in the contract on how to leave the partnership, so start there. Be sure to check for fees. Do you have to pay the annual fee if you leave partway through the year? Is there a sales fee or a transfer fee associated with any of your investments? These are all things you can ask your current advisor before you start the process. And sometimes, your new advisor is so happy to have you as a client that they will pay the transfer fee.
Have a new advisor picked out. When you leave your old financial advisor, they’ll have to transfer your financial records to your new one. So before you pull the plug on any relationships, make sure you’ve got a new advisor all set up.
On that note, really review your new advisor. You’re leaving your old one for a good reason. Talk in depth with your new advisor to see what kind of plan they’ve got for you, as well as the tax implications of their plan and the switch, and make sure that your new advisor is all set up to accommodate the types of accounts you’re bringing over. Some advisors can’t legally hold certain types of assets. Be very clear on the new advisor’s capabilities.
Get a copy of your transaction history. While you definitely want your new advisor to be all caught up on your financial history, you should be as well. Keeping accurate financial records is a key part of financial health. It’s also up to you to track and mediate the transfer of files between your advisors. No one will care about your money the way you do, and should the IRS ever come knocking, having these files will make everything easier.
Always Follow Up
Transferring certain types of accounts, like proprietary funds, may take a while. You should follow up on the transfer after two weeks to make sure that everything got where it needed to go.
Another nice thing to do, depending on how long you were with your first advisor, is to send them a personal note about the switch. It doesn’t have to be long or particularly in depth. A simple email stating why you’re making the switch and thanking them for their work is a nice touch that will go a long way. It can sting a little bit to lose a client, so end things on good terms with a short, personal note.
Check Out Robo Advisors
If you’ve been underwhelmed by your financial advisor and find the fees a bit high, you might prefer using a robo advisor. These are services that automate your asset allocation using computer algorithms (in large part, incorporating Modern Portfolio Theory).
For a detailed comparison of some of the robo advisors we’ve reviewed, click here.
The Right Choice for You
Your money is your money. It’s what you use to carve out the life you want to live for yourself, and you have every right to control the flow of it however you want. Switching financial advisors can be just one more necessary money step to ensure that you feel great about your finances. Follow these steps to help make sure that the switch goes smoothly.
Breaking up doesn’t have to be hard to do.