Switching advisors can feel overwhelming. But luckily, it doesn’t have to be complicated.
If you're wondering how to change financial advisors, then you're probably looking for clear, actionable steps to make the transition smooth and hassle-free.
You likely want to understand the process, the potential costs, and how to find a qualified advisor who aligns better with your financial goals. This guide is designed to help you navigate the advisor switch with confidence and ease.
In addition, if you're looking for a new financial advisor, we recommend working with a fiduciary financial advisor. A fiduciary is legally obliged to provide you with the best advice and recommendations. Their legal obligation to put the client first means you don't have to be worried about being put in high-cost, low-value investments.
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When to Change Financial Advisors
If your advisor isn't meeting your expectations, it's time to evaluate the relationship.
Common red flags include lack of communication, extremely poor performance despite a robust market, or not adapting strategies to your changing life goals. An annual review is a good time to assess your advisor’s performance against your objectives.
Life changes, such as a new business venture or nearing retirement, might also require a different skill set. Remember, a good advisor should help you navigate these transitions smoothly.
If your advisor isn't checking in with you a few times per year, helping you to navigate life changes, ensuring your estate planning is up-to-date, and providing tax planning advice, it may be time to make a switch.
When to consider when changing financial advisors:
Lack of communication
Poor performance in a strong market
Failure to adapt strategies to your changing life goals
Infrequent check-ins (less than a few times per year)
Not assisting with major life changes and financial planning
No assistance with estate planning
Lack of tax planning advice
Your financial situation is more complex, and you need a more robust suite of services
What Makes a Financial Advisor “Good”
A good financial advisor is someone you can trust and with whom you feel comfortable discussing your most important financial goals.
A good financial advisor combines expertise and experience with empathy and a fiduciary duty. Look for someone with the necessary designations and experience, listens to you carefully asking questions, and demonstrates an understanding of your unique goals and financial situation.
They should be transparent about fees and proactive in informing you about your financial plan.
A good financial advisor will create a customized strategy for you based on your risk tolerance, life stage, and personal goals and dreams.
They act as a partner, guiding you through market ups and downs while focusing on your long-term success.
Finding a Good Financial Advisor
Finding the right advisor involves research and diligence.
You can start by asking for referrals from trusted friends or colleagues and doing a search online for fiduciary advisors. Check credentials like CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst). Interview potential advisors to gauge their expertise, communication style, and approach to financial planning. Make sure that you feel comfortable speaking with your advisor.
Look for a fiduciary, i.e. someone legally obligated to act in your best interest. Remember, this is about finding a long-term partner who aligns with your financial goals and values.
If you're looking for a financial advisor, planner, or wealth advisor, we recommend you schedule a 15-minute call with a 360 Financial advisor.
How to Switch Financial Advisors
Start by reviewing your current contract to understand any termination clauses or fees.
Once you've chosen a new advisor, they will work with you to create a transition plan. Your transition plan usually includes transferring your accounts, which can take a few days to a few weeks.
It's important to ensure there are no lapses in managing your investments during this time.
Notify your current advisor in writing, and request all relevant documents to be transferred securely. Open communication with both the old and new advisors helps ensure a smooth transition.
Your new advisor should guide this process, so you don’t need to worry about figuring this out independently.
Steps to "Fire" Your Financial Advisor
Switching from one financial advisor to another requires a clear and respectful approach.
Your new advisor will be able to guide you through this process, so don't worry about remembering all these steps. This is just an overview of the actions you may wish to take.
Step 1: Review Your Contract
Check your current agreement for any penalties or specific procedures required to terminate the relationship.
Step 2: Prepare and Send a Formal Termination Letter
Write a concise letter stating your intention to end the relationship, including the effective date of termination.
Step 3: Arrange Account Transfers
Coordinate with your new advisor or a custodian to transfer your accounts. This ensures continuous management of your investments.
Step 4: Obtain Necessary Documents
Request all relevant documents, including recent statements and transaction history, to ensure a smooth transfer.
Step 5: Confirm Assets Transfers
Confirm that your assets have been transferred.
The Cost of Changing Financial Advisors
Switching financial advisors can come with certain costs.
You might encounter termination fees from your current advisor, as some contracts include clauses for early exit. Additionally, there could be costs associated with transferring accounts, such as transaction fees or charges for liquidating certain investments.
Be aware of potential tax implications if assets need to be sold during the transfer.
Your new advisor can explain any potential costs of switching and guide you through minimizing these costs and any tax implications. It’s important to weigh these short-term expenses against the potential long-term benefits of a new advisor relationship.
Communicating with Your Current Advisor
Approach the conversation with your current financial advisor with tact and clarity.
Start by being honest yet professional. Schedule a meeting or call to discuss your decision directly. It's best to focus on your changing needs rather than listing grievances.
Try to keep the conversation constructive. If you're 100% sure that you want to switch financial advisors, then you may wish to simply inform your advisor in writing rather than having a 1:1 meeting.
If your current advisor offers pushback or tries to persuade you to stay, remain firm but polite.
Emphasize that your decision is final and based on what you believe is best for your financial future. And don't sweat it. Your current advisor is obligated to assist with a smooth transition. They must respect your wishes.
Common Questions about Switching Advisors
Is it OK to change financial advisors?
Yes, it’s perfectly fine to change financial advisors if your current one isn’t meeting your needs.
The goal is to find an advisor who aligns with your financial goals and offers the expertise and communication you require for a successful partnership.
Should I choose an investment adviser or a certified financial planner for my needs?
Choose based on your specific needs.
An investment adviser focuses on portfolio management and investments, while a certified financial planner offers comprehensive financial planning. If you need a broader range of services, a CFP might be more suitable.
What is the difference between a registered investment advisor and a certified financial planner?
A Registered Investment Advisor (RIA) typically focuses on managing investments and must act in your best interest.
A Certified Financial Planner (CFP) has broader expertise, including financial planning, estate planning, and insurance. Both can be valuable, but their roles and expertise differ.
How do I transfer my investment accounts to a new advisor?
To transfer your investment accounts, you'll generally complete paperwork with your new advisor to initiate the process.
This can involve either a full or partial transfer of assets. Your new advisor will guide you through each step to ensure a smooth transition.
What happens to my advisor relationship during the transition to a new advisor?
Your current advisor relationship typically ends once you've initiated the transfer process.
During this period, communication may shift to the new advisor, who will take over managing your accounts and investments according to your new strategy.
What do I say when changing financial advisors?
Keep it professional and straightforward.
You can simply say, "I've decided to go in a different direction with my financial planning. I appreciate the work we've done together, but I've found another advisor that better fits my current needs."
Do investment firms help with the transition to a new advisor?
Yes, many investment firms assist in the transition process.
They can help transfer your accounts, provide necessary documentation, and ensure a smooth handoff between your old and new advisors. This support helps minimize disruptions in managing your portfolio.
How do I establish a successful new advisor relationship?
Start by setting clear financial goals and expectations.
Communicate openly with your new advisor about your risk tolerance, long-term objectives, and any concerns. Regular check-ins and updates can help ensure your new advisor relationship stays aligned with your financial plan.
What should I consider about the risks when changing advisors since investing involves risk?
Switching advisors won't eliminate investment risks, but it’s important to ensure your new advisor understands your risk tolerance.
They should create a strategy that aligns with your risk preferences while navigating market fluctuations and adjusting as needed for your comfort level.
What are the tax implications of switching financial advisors?
The main tax implications occur if assets are sold during the transfer.
This can lead to capital gains taxes. It's important to consult with your new advisor to structure the transition in a way that minimizes these potential tax consequences.
Will changing financial advisors affect my investment taxes?
Switching advisors itself doesn’t trigger taxes, but if investments are sold during the transition, it could result in capital gains taxes.
Carefully review potential transactions with your new advisor to manage any tax liabilities.
Are there tax penalties for changing financial advisors?
There are no direct tax penalties for changing advisors.
However, if investments are sold as part of the transfer, this can create capital gains that are taxable. Work with your new advisor to handle the transition in a tax-efficient way.
How can I minimize taxes when switching financial advisors?
Work with both your new and old advisors to transfer assets in a tax-efficient manner.
They can help you avoid unnecessary sales that trigger capital gains and explore options like in-kind transfers to minimize tax implications during the switch.
Do I need to report switching financial advisors on my taxes?
No, switching financial advisors does not need to be reported on your tax return.
However, any transactions resulting from the switch that affect your investments may need to be reported, especially if they impact your capital gains or losses.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
