Not everyone needs a financial advisor, but for those of us just starting out, it could be a good option. However, as our knowledge, and bank accounts, increase it may be time to upgrade to a new advisor, or forgo one altogether. Here are the steps to take when hiring someone new to help manage your investments.
Determine the Best Route to Go
So you’ve seen the signs and decided it’s time to fire your financial advisor. Where do you go from here?
The first thing to do is decide if you even need a new financial planner in the first place. Maybe you want to manage your money on your own, and look into DIY services like Betterment or Personal Capital.
If your choice is to go with another firm and financial advisor, you’ve got to do some research first. What are your reasons for breaking up with your original account manager in the first place?
You want to be sure your new advisor doesn’t have these qualities so you get the best service possible for your financial needs. Like with any other type of break up, you don’t HAVE to warn the other party you’re moving on, but it’s good manners if you calmly explain your reasons for looking elsewhere.
Next, it’s time to book an appointment because there’s paperwork to be done, on both ends.
Transfer Your Accounts
For starters, you can email your advisor to obtain a form rescinding the old advisor’s authority to trade within your account and on your behalf. Or if you’re feeling so motivated, you can always call and fire them outright — if the situation warrants it.
For the most part though, the break-up with your financial advisor will be a painless and simple process. They may give you a pitch to keep your money, and even ask you a few questions to improve their service in the future.Aside from that, there will be little controversy.
Additionally, you don’t have to sell any of your investments, as they will be automatically transferred to the new brokerage (or account if you prefer to DIY). You will also have to pay a transfer fee to your new advisor that ranges from $75 to $100.
Cover All Your Bases
Some firms may not do business with the funds or stocks you currently have invested, so you may be forced to liquidate some or all of your portfolio. This could cause you to incur capital gains tax on any profit you make, which will raise your tax bill at the end of the year.
You could also incur additional taxes and penalties if you withdraw funds from a pre-taxed account and put them into an after-tax account, like a Roth IRA. In this case, you may need to open new retirement or investing accounts, or you could end with loads of tax issues.
There are other fees you might need to pay too, like holding fees or penalty charges, since you only have a certain period of time to “rollover” or transfer your accounts — in most cases it’s a 30-90 day holding period.
All of these points need to be taken into account before you decide to find someone new to manage your investments. Which is why it’s so important to thoroughly research the brokerage or financial firm you want to do business with and make sure everything gels.
Finalize the Process
The transfer process from one firm to another usually takes about two weeks if everything goes smoothly. If you need to sell or liquidate any assets, it’s best to do it before starting this process, otherwise you will have to wait until the transfer is complete.
Once everything is done, you and your new financial advisor can meet to discuss your new financial strategy going forward, plus any account fees and other charges.
If you didn’t like the fact that your previous financial advisor never answered the phone or an email, now’s the time to mention this to your new advisor to clearly state what your expectations in the future.
Have you ever broken up with a financial advisor? What was your experience?