How to Switch Financial Advisors (2024)

For many people, switching financial advisors can be very difficult and they end up avoiding the topic and putting it off, indefinitely. However, replacing your advisor doesn’t have to be a big hassle or come with high costs, if you can do it the right way. We spoke to two financial advisors who have been on both sides of client transfers. Here’s their take on the break-up process and how to make it short and sweet.

Good Reasons for Switching Financial Advisors

There are plenty of good reasons for wanting to make the change. Shanna Tingom, AAMS, CDFA, a financial advisor with Heritage Financial Strategies in Gilbert, Arizona, offers these three: your advisor is inaccessible, gives unclear and jargon-filled answers or has bad follow-through.

“Your advisor should be willing to talk to you and help you understand your investments and strategy,” Tingom says. “You should know what he or she thinks about the market and economy and how they may impact your investments. If you walk away from a conversation feeling more confused than comforted, you may have the wrong advisor.”

She notes that messages get lost and people can make mistakes. Still, your advisor should be responding to your emails or calls and doing what they say they will do. If not, she adds, “this could be a sign they have too many clients or an inadequate process in their office — this isn’t someone you want managing your money.”

Steve Lockshin, founder and principal of Los Angeles-based AdvicePeriod, adds this reason: you find out your advisor didn’t disclose a conflict of interest. “Your best interest should be your advisor’s top priority,” Lockshin explains. “Undisclosed conflicts of interest are clear signs that your advisor is more interested in his or her pocketbook than in yours.”

Lockshin, author of “Get Wise to Your Advisor,” also believes that you shouldn’t give management of your money to someone who thinks they are smarter than the market or who charges a premium for commodity services. “The data has demonstrated that most active funds and managers underperform the markets,” he notes. Also, thanks to robo-advisors that have driven costs down, “access to asset allocation and fund selection is extremely inexpensive.”

Bad Reasons for Switching Financial Advisors

Still, it is possible to want to change advisors for a bad reason. Perhaps the new advisor is your golf buddy. Or maybe he or she can get you access to an exclusive investment or to a proprietary system that can outperform the market.

“These are all common sales techniques,” Lockshin says. If one of them is your reason for switching, you should reconsider.

Another reason that should give you pause: you don’t feel the return you’ve been getting is good enough. You could be right, but make sure you are comparing your return to the appropriate index. “Not to what you’re hearing on the news or what your brother-in-law tells you he’s gotten in penny-stock returns,” Tingom says. “Compare apples to apples and have a long-term focus.”

Tingom also thinks that moving out of state doesn’t have to be a reason for changing advisors. “In today’s connected world, you and your advisor can have a successful relationship as long as they are licensed in your state and embrace technology like screen-sharing apps that allow you to look at the same screens and even share video,” she says.

Finding a New Advisor Is the First Step

Before you fire the old advisor, you need to line up the new one. This is because once you deliver the bad news, you don’t want to keep the old advisor in a holding pattern. You want him or her to hand off your assets to the new advisor promptly. Also, by having a new advisor, you can rely on that professional’s help and know-how in transferring investments, which can be complicated – and unnecessarily costly if gains are realized as a result of exits made.

How to ensure that the new advisor becomes your long-time advisor? Tingom advises making sure he or she is more interested in you than in how much money you have to invest. She also says to look up the person in Brokercheck to see how long he or she has been in the industry (the longer, the better), how many firms he or she has worked for (many is a red flag) and if he or she has any disclosure events such as complaints or financial wrongdoing.

Lockshin’s checklist has three non-negotiables. The advisor should:

Knowing What to Expect Is the Next Step

Your contract with your advisor has a termination clause, which you probably didn’t read closely when you signed. On the bright side, Lockshin says that “most contracts are terminable with short notice. This is one area where the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have done a decent job.”

Still, you’ll want to read the contract carefully to know what the fees are for closing your account. Also, you want to know how management fees are calculated if you are closing mid-quarter. Additionally, you should read your last statement to see if you have any proprietary investments or annuitiesthat can’t be transferred or funds that have exit fees (e.g., B-shares of mutual funds).

This is where the new advisor can step in. Lockshin recommends having the new one as well as the old one “outline any illiquidity or transfer restrictions or costs to transfer before creating any negative outcomes from taxes or fees.”

That said, most investments can transfer “in kind” within one to four weeks. Typically, the only costs for changing advisors are any closing-account fees (per the old contract), exit fees (from certain funds), commissions for selling investments that can’t be transferred (and any losses), costs for buying new investments and taxes from any realized gains. But the new advisor may pick up some of these expenses, so be sure to ask.

Notifying the Old Advisor Is the Final Step

Since most of us are confrontation-averse, this last step is probably the hardest. But it doesn’t have to be. You could just let your new advisor put in the paperwork for a transfer, but Tingom recommends sending an email to the old advisor. “Make it short and to the point,” she says. “Once you’ve made the decision, there’s no point in rehashing old frustrations.” They may try to contact you – by law, they can call you one more time after being notified. “But you are not under any obligation to answer or talk to them if you don’t want to,” she adds.

Lockshin, on the other hand, advises picking up the phone (unless you were treated unfairly) and then following up with a letter or email. “I prefer to treat people the way I want to be treated,” he explains. “Thank the advisor for their service, then tell them the truth. You found a new advisor whose approach aligns better with your philosophy – or who has no conflicts of interest, who is more technologically oriented or who uses lower cost/more tax-efficient investments. These are all good reasons for a move and irrefutable.”

Lockshin adds that if the advisor plays the “friend card,” then he or she is not a true friend if leaving will harm your relationship.

Finally, resist the urge to say you’re sorry. “You should never have to apologize for taking care of your own money,” Lockshin says. “You should always do what you feel is in your best interest.”

The Bottom Line

Switching financial advisors doesn’t have to be hard. Just break it down into three manageable steps: find a new advisor, figure out what expenses the move will incur and then call or email the old advisor to notify them of the change. Your new advisor, once chosen, can help get everything transferred over. Not many people enjoy breaking it off with a former advisor but it can be a very easy and painless process if you just rip off the bandaid and find the right advisor moving forward.

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