I have been dumped. And I have dumped. I've also been the other man. So go the dynamics of a relationship with a financial advisor. While I no longer have clients (they all broke-up with me), the relationship transition between an advisor and a client still sticks in my mind as a visceral one. Did trust disappear? Did goals change? Does a reason for change even have to exist?
Sure, there are lots of parallels to be drawn between breaking-up with your financial advisor and breaking-up with a love interest. But there is one major difference. Money. Well, hopefully that's the major difference. Awkward. Your financial advisor will no longer count you as an income source. While he/she may try to argue their disappointment in leaving isn't about the money, it's about the relationship, it's about the money. Feelings don't pay the bills. Don't get me wrong, I was very hurt when clients left, and I didn't really even think I cared about the money. But the reality is if every client left me, I wouldn't be able to pay my bills.
There's no easy way to tell someone that they failed you. That's what happened, right? You had an expectation; the expectation wasn't met.
The process of leaving an advisor has two parts: transferring your accounts to their new destination and your advisor learning you are leaving. Usually, you can kill two birds with one stone. But sometimes your advisor may need to find out via their firm (see point 3, below). Here are the three primary ways to get started.
1. Have your new advisor send/file the paperwork- There's a lot of different paperwork. The most common form involved in changing advisors is called an ACAT. There are full ACATs and partial ACATs. The form transfers your assets to the new account. Sometimes this requires you liquidate your current investments prior to the transfer happening, but most of the time you can transfer your assets as-is. Your old advisor will find-out you left when the transfer paperwork tries to claim your accounts. This is the preferred method if the relationship has gotten beyond weird. There' s no reason to have an avoidable confrontation, especially if the relationship has turned contentious.
2. Contact your advisor, thank them for their service, and ask for transfer-out paperwork- I understand you may not want to talk to the advisor you are leaving. Breaking-up isn't exactly fun. In my opinion, letting your advisor know you are leaving them is the right thing to do. A call will do. An email will do too. Thank them for their service, and let them know you are going a different direction. They may ask why, but they probably already know the answer to that question. If you feel comfortable in letting them know why, go ahead and tell them.
Here are some reasonable reasons to leave an advisor:
- Consistently underperforming the market, in spite of taking similar risks to the market.
- High or unexplainable fees.
- Poor service.
- A bad personality match.
- A disagreement over investment philosophy.
In all of these instances, it's not out of the question to let your advisor know why you are leaving. Your goal isn't to get into a debate, it's to end the relationship and move-on. If your problem is up for debate, don't start with "I'm leaving." Start with "Can we talk about client/advisor relationship?"
3. Call the 800 number- In the rare instance you feel the need to create a paper trail, call the 800 number. There are instances in which an advisor's conduct needs to be reported. By calling the firm's customer service department directly, you are likely to have your conversation recorded. This allows you to inform the firm of any suspected wrongdoing. There's a difference between your investments lagging in performance to the market and wrongdoing. Don't blow the whistle of wrongdoing just because you don't understand how the market works. However, if you've promised something in regards to performance, you need to report that. But just know, there's a massive difference between promises and hypotheticals.
You can't undue a complaint. In the financial world, a formal complaint is a REALLY big deal. It will go on your advisors permanent record. None of the reasonable reasons for leaving an advisor (listed above) warrant an actual complaint. If you feel like you were lied to, or fraud is occurring, report it. Otherwise, have a conversation with your advisor.
A strange reality
Some advisors are just better than others. When I was in the financial business I had people leave me for better advisors. I was okay with that, and I'm still okay with that. Depending on where your financial person works, they may be limited in the products and services they can offer you. This isn't their fault. I believe this is one of the most misunderstood concepts in all of the financial world. Some financial professionals may not be able to offer certain services based on what their company allows or doesn't allow. And while unrealistic industry ethicists may suggest that a financial professional switch firms if he/she can't offer the absolute best solution, I find this expectation to be out of touch.
A financial professional is not likely to leave the firm they are working for because they can't offer a specific solution or their pricing isn't the most competitive in the industry. Advisors risk throwing away their entire books of business if they switch firms, due to non-compete agreements. Your advisor may simply be doing the absolute best he/she can under the restraints of his/her current firm. That has nothing to do with you. A higher priced advisor who is offering a less attractive service isn't a bad person or bad advisor; they simply have a different toolbox.
All of this is to say that if you choose to leave your advisor because of performance or pricing issues, it might not actually be that individual's fault. It's not your fault either, by the way. The fault lies in the service offerings made available by the advisor's firm. Don't create a mystical scenario in which your advisor is evil and trying to take you for everything you're worth. They aren't. They are just doing their job the best they can.
One last note
I've always thought of investment advisors like prizefighters. The good ones know they're good and they typically think they know more than their competitors. This can lead to some weird side-effects. Almost any advisor would look at your current portfolio and tell you how they would do it differently. That's not reason enough to switch advisors. Give me 100 advisors, and I'll show you 100 different investment strategies. Different isn't better. Different is just different.
