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How and When to Change Your Financial Advisor

By Justin Pritchard, CFP®

Sometimes things don’t work out, and sometimes things change. That’s okay. When your financial advisor no longer satisfies your needs, it’s relatively easy to switch. But it’s crucial to understand the process and potential costs that come when you change financial advisors.

On this page:

  • How to Make the Change
  • Potential Costs of Switching
  • When Is it Time to Move On?
  • Sample Letter to Notify Advisors

When new clients begin working with me, we often discuss these topics. But I’m not the right fit for everybody, so hopefully this information is helpful for everybody else.

How to Change Advisors

Once you decide to make the move, you begin the transition process. 

Continue reading below, or listen to this topic by video:

This is often straightforward when your new advisor is competent at helping you make the switch. However, if you have complicated products—or if there’s an operational hiccup—the process can get a bit cumbersome. Still, there’s a reason you’re switching, and you’ll soon be in a better position.

If Your Advisor Manages Assets For You

If your advisor provides asset management services, in many cases, the process looks like this:

  1. Find a new advisor: Be sure to ask critical questions and research the advisor’s background and qualifications before you engage. Take your time, and trust your guy—if you sense any uncomfortable pressure, move on to somebody else.
  2. Discuss your needs and preferences: This process can require in-depth discussions, or you might be able to cover everything needed in a handful of meetings and phone calls. Your advisor needs to know enough about you to offer appropriate recommendations, and you need to communicate what’s most important to you.
  3. Evaluate the costs of moving any accounts: See below for more details. Ask your current providers how much it costs to leave and review your agreements.
  4. Sign agreements with your new advisor: This can often be done electronically, making the process quick and easy.
  5. Open new accounts: For standard account types, you need an empty account to receive assets.
  6. Provide information: In most cases, you need to provide a statement for each account you want to move to your new advisor, and additional documents may be helpful. Ask about secure file-sharing vaults and other options to keep your sensitive information secure. Please do not email account statements or other important documents.
  7. Ask your advisor for help: You might benefit from three-way calls with your advisor on the line if you find the language of investment accounts overwhelming (or boring).
  8. Submit transfer requests: Once you complete this step, things should happen behind the scenes. The process of transferring accounts typically takes a week or two.
  9. Gather documentation: It’s wise to get statements, tax documents, and any other information before your current advisor closes your accounts. You can often download that information online or get it by calling a 1-800 number for customer service.
  10. Enjoy your new relationship: Continue the discussions above, and notify your advisor whenever anything changes in your life. You should already know (from the “get to know you” phase) how often you’ll plan to talk—but one-off discussions are generally welcome and encouraged.

If Your Advisor Doesn’t Manage Assets

If you’ve been working with somebody who only provides advice, the process is generally quite easy. Notify your advisor that you’d like to end the engagement, and begin working with your new advisor. See sample letters at the end of this article if you’d like help wording your notification.

Be Prepared for Last-Ditch Efforts

You typically don’t need to talk to an advisor after you decide to leave. Your advisor may try to “save your business” and talk you out of your decision. The more pushy somebody is, the less beneficial these discussions tend to be. Simply say, “I’ve made my decision, and I wish you the best,” and end the conversation. Arguing point-by-point is often an invitation for manipulation.

Cost of Changing Financial Advisors

And Tips for Minimizing Fees

There may be some cost to switching advisors, but with any luck, you can manage those fees. And in some cases, you come out ahead shortly after leaving expensive products and strategies behind.

These are some of the costs you’re most likely to pay, in order of size.

Taxes

If you need to change investments when you leave your advisor, there could be tax consequences. That’s only the case in taxable accounts like individual and joint accounts (and some trust accounts). But there’s good news if the majority of your assets are in retirement accounts like traditional and Roth IRAs: Selling your holdings in retirement accounts typically does not result in taxes.
You can minimize the tax consequences of changing advisors by transferring your assets “in kind.” Instead of having your old advisor sell everything, you may have the option of moving over shares of stock and mutual funds. Then, your new advisor can decide what to sell, and when. There may be opportunities to take gains slowly, take losses, or use other opportunities—if they arise.

No transfer required? In some cases, you don’t even need to transfer your money anywhere or sell holdings. If you use a fee-only advisor, you may be able to get advice on your money while leaving it where it is. Also, if your old advisor and new advisor use the same custodian, you may be able to simply switch advisors on your account.

Annuity Surrender Charges

If your money is in an annuity, you may have to pay surrender charges to get the money out. Those charges can be substantial, and they may last for many years (seven years is a standard timeframe, but longer schedules exist). 

A surrender charge is a fee you pay to the insurance company you’re removing funds from. The insurance company most likely paid a commission to whoever sold you the annuity, and the company wants to recoup those costs (which they can’t do if you take your money back).

Before paying surrender charges, evaluate strategies to minimize your costs. For example, you may be able to take 10% out each year for “free,” or you might be able to wait out the surrender period (if the end is near).

When moving out of an annuity, there may be taxes, so use extra care. However, depending on the details, there might be opportunities to dodge or postpone those taxes. Check with your new financial advisor and CPA before taking action. Likewise, you might forfeit certain benefits, so this is a decision that needs to be evaluated carefully.

Commissions to Liquidate

In some cases, you need to liquidate your holdings to transfer out. But make sure that’s the case before allowing it to happen. If you’re leaving a less-than-ideal advisor, there’s a decent chance that they’ll charge high transaction fees simply to sell stocks and ETFs—something many advisors will do for free. In some accounts, the cost exceeds several hundred dollars, and it’s completely unnecessary.

Tip: If you own stocks and ETFs, consider transferring those assets to your new providers “in kind” to dodge high trading fees.

Your Time

Your time is valuable, and although you won’t see a fee or tax bill, it takes some effort to change advisors. Your new advisor should make it as easy as possible, ideally coordinating most of the logistics and requiring you to just sign off on the move. Still, you may need to gather statements and other documents.

Ideally, you’ll find your “forever” match with your next advisor. But just to be safe, you can ask where your advisor holds funds (assuming they will be managing assets for you—if not, it doesn’t matter). If it’s a major open-architecture brokerage house, the process may be relatively easy if you need to switch advisors again. You’d just need to find an advisor who uses that same brokerage house (Schwab or Fidelity, for example).

Dings and Other Annoyances

If you move your accounts, you may pay small “account closing” fees or similar charges (often $50 to $125 per account, but check before you assume anything). Sometimes, you’ll pay your annual IRA custodial fee, even though you’re leaving early in the year. These small-dollar charges don’t affect your big-picture finances, but they can be some of the most annoying fees to see.

When Should You Change Advisors?

If you’re considering a change, it’s probably past due. Your finances are important, and it’s critical to have confidence in the person who is managing assets and providing advice. Some signs that you should get a new advisor include:

Lack of Trust

If you can’t trust your advisor, it’s time to move on. Sometimes this is a result of blatant violations, but sometimes an advisor breaches your trust in smaller ways. Any feelings you have about your trust being violated are valid, and you don’t need a “good reason.” If your gut is telling you something, there’s a good chance you’re right.

Advisors often lose trust through a lack of transparency. If they can’t tell clients—with complete honesty—how much they’re earning and what fees clients pay, it’s generally a bad sign.

Wrong Vibe

Sometimes you’re just not a good fit for each other. That doesn’t make anybody a good or bad person, but it doesn’t mean you need to keep working together. If your advisor is on a totally different wavelength (and not in a good way), it’s okay to find somebody that resonates with you.

Can’t Talk About Anything Except Investments

Financial advisors were historically stockbrokers. Many advisors have evolved to include guidance on a broad array of personal finance topics, but some just stick to investments. There’s nothing wrong with that—as long as that’s all you want. But if you’d prefer to discuss things related to your big-picture finances, find somebody who can go there with you.

High Fees

It’s smart to pay professionals for advice, but it’s best not to overpay. When financial advisors use expensive products that lack transparency, it’s wise to look elsewhere. At some point, you need to get value for the fees you’re paying (and you need to know exactly how much you pay).

Unresponsive Advisors

As mind-boggling as it may seem, some advisors don’t return calls or respond to emails. Presumably they’re too busy? You need to feel comfortable that your finances are well-cared-for, and an unresponsive financial advisor does not instill confidence.

Unreasonable Risk Taking

Losses are complicated, and any financial advisor can experience losses in the markets. The question is whether or not those losses seem reasonable compared to what’s happening in the broader markets—and given your risk tolerance. If you didn’t’ sign up for an advisor to roll the dice with your money (but that’s what’s happening), a change may be in order.

Sample Letter to Change Financial Advisors

You don’t necessarily need to notify your soon-to-be former advisor that you’re leaving. You don’t owe anybody an explanation, and if you’ve received bad treatment, sometimes “The best revenge is a life well-lived.” However, sometimes you want to air your grievances, and sometimes you’re leaving an advisor that you truly like—but just isn’t the right fit.

With some firms, a letter is required. But again, there’s no requirement to provide a letter with most advisors. Your new financial advisor or custodial firm can handle most of the logistics of moving money out of your accounts. 

Sample #1: Letter Required

Letters do not need to be lengthy or detailed, especially if sending a letter is a requirement. This is merely a formality, so you don’t need to waste too much energy getting this done.

Dear Advisor,

I’m writing to request that we terminate our engagement as soon as possible. I have decided to use a different provider. Please notify me of any action needed to complete this change, and please contact me before taking any action in my accounts.

Sample #2: Thanks for the Memories

Dear Advisor,

Thank you for your assistance during our time together. I have decided to go a different route, and will no longer be needing your services. I’ve begun the process of requesting transfers, and you will see those shortly. I appreciate what you’ve done for me, and I wish you the best.

Please notify me of any action needed to complete this change, and please contact me before taking any action in my accounts.

Thanks again,

Client

Letters to Investment Providers

If you’re just trying to remove an advisor from your investment accounts, you can often do that with a phone call. Major custodians typically accept verbal instructions to take your advisor off your account, but if you want to add a different advisor, you’ll probably need a form.

No matter what you’re trying to do with your investment accounts, it’s best to use your investment provider’s forms. A phone call or chat session with a customer service representative can often provide information.

Still, you can try the sample letter below to remove an existing advisor.

Dear Custodian,

Regarding account number: 123456

Please remove the financial advisor John Doe from my account. I would like this to be a “retail” account instead of an advisor-directed account. Please let me know of any additional information needed.