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How Do I Break Up with My Financial Adviser?

by Justin Long, on Jul 14, 2021

In last week’s blog we covered reasons to consider changing your adviser. So, let’s say you’ve decided to make the change. Now, you are considering how to approach it.

 
First and foremost, let me start by saying that changing advisers probably isn’t as elaborate of a process as you think. Depending on who you are choosing to work with moving forward, it is usually as simple as filling out one form to make the change. If your accounts are currently at one of the big national custodians (i.e., Charles Schwab, Fidelity, TD) in most instances there is actually no transfer of assets anywhere; your money stays where it is, and your logins stay the same — the only thing that changes is who manages the relationship.

 

Whether your adviser was someone you worked with for years, just a name that appeared on the top of your monthly statements, or anywhere in between, this is a step-by-step guide to help the process be as seamless as possible.

 

Consider Your Current Firm's Transfer Policy

Depending on which firm you are moving from, looking into how that firm handles transfers should help sort out your expectations. For example, making a switch mid-year may cause timing issues. If the firm charges an annual fee, and you leave before the year is up, will that fee be prorated? Are there any withdrawals you have set to come out of your account during the transfer time frame? These are details to prepare for ahead of time, and your new adviser should assist you in navigating these possible roadblocks.

 

Read Your Contract's Fine Print

 

When you initially started working with your current adviser, you likely signed a management contract. A clause about how to formally terminate the adviser-investor relationship is generally outlined in these contracts. Typically, sending your former adviser a signed letter is all it takes to terminate the contract; however, in some cases, a termination fee may apply. It is important to read though all those details, so there are no surprises in the breakup.

Collect Your Investment Records

Maybe you don’t have copies of all your statements, and it has left you wondering — is my investment broker or financial adviser required to give me my records? There is good news: your current adviser is required under regulations to share certain historical information with you.

 

Now, while it is required for advisers to transfer this information, it’s best to retrieve a copy of the transaction history before you request the transfer. This ensures you have the records if anything goes wrong during the transfer. Many investment firms provide investors with full access to these records through a password-protected website. Be sure to save these files while you still have access to the site. Otherwise, you can simply ask for it.

 

It is also prudent to compile information about the cost basis of your securities for your own records. The cost basis refers to the original value of a security (usually the amount you paid to purchase it) — adjusted for dividends, stock splits and return-of-capital distributions. This is especially critical when transferring taxable investment accounts. Although cost-basis data is included in the transfer of your accounts, you will need this information when it comes time to file your income taxes, so it is best to have it readily available to you.

Leave the Dirty Work to Your New Adviser

As mentioned above, it is important to know that you may not even have to directly breakup with your old adviser. In many cases your new adviser’s firm can request the funds and transfer investment accounts from your former firm.

 

If your new adviser has a relationship on the platform where your assets are currently held, it is typically one form, such as an adviser-change form, that needs to be signed. Your new adviser will be able to obtain this for you and send it on your behalf. This change can take as little as a few days, or up to about one week to complete.

 

If your assets are required to move, this process will likely be performed via an electronic system called automated customer account transfer service (ACATS). In this case, all you’ll have to do is fill out a few forms. This transfer process usually takes from one to three weeks but can take a month or so depending on the assets you hold — for example, when transferring a hedge fund. Your new adviser will also get your investment history as part of this transfer.

 

Consider Working with a Fee-Only Fiduciary

All the aforementioned advice has to do with the actual transfer process, but to cover all the bases, ensuring that your new adviser is the right fit is essential. Before you give the green light for a new adviser to transfer your accounts, there are a few things you need to consider.

 

Ask your new adviser about what kind of sales charges you could face when you switch. Some investments carry contracts that lock them down for a specified period of time. Additionally, some of your investment accounts may be exclusive to your former adviser's firm, which means you cannot automatically transfer that account to a new firm. If this is the case, you may have to pay some fees.

 

For example, if you hold an annuity contract that is proprietary to your old firm, you may have to cash it out before your new adviser can invest the proceeds. Depending on the terms of the annuity, and how long you have already held it for, you might have to cough up as much as 10% of the contract value, which is known as deferred sales charges. If you do need to change custodians, review your investment prospectuses carefully to determine whether any fees will apply.

 

This is information your new adviser should be able to explain to you and evaluate what the best course of action would be in your situation. Together you can calculate out whether it makes more sense to keep the annuity contract with your former adviser's firm, or how to navigate your other investments.

 

This math usually has a few moving pieces to consider. If you expect to make much more money in your new situation, a one-time fee might be worth it. Furthermore, some advisers can actually reimburse you for all or some of these fees in exchange for moving your business to them. It is in your best interest to ask before you make the change. 

 

The Bottom Line

While going through a breakup can seem daunting, if you are not with the right partner, making a change is critical — and likely worth the few steps you need to go through to do so. Remember the lion’s share of the work should fall on your new adviser, but it is helpful to understand the process upfront to avoid any pitfalls. If you have any questions about this process, whether we are the firm you are looking at moving to or not, Diazo is ready to assist you.

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Topics:Financial Planning

 

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of any topics discussed. All expressions of opinion reflect the judgment of the authors on the date of the post and are subject to change. Hyperlinks on our posts are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours.

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