A wise move to change a financial adviser

Why change financial advisors?

If you want to change your financial advisor, of course you are not alone. According to data from the research firm Spectrem Group, nearly 60% of investors have changed advisors during their lifetime. The main reasons for abandoning advisors include lack of contact, poor stock market performance, and poor advice and ideas.

There are many reasons for investors to exit with their advisors. Whether you are dissatisfied with poor portfolio performance, frustrated with your advisor’s lack of communication, or the two of you are just oily, one thing is certain: a breakup is always difficult to do.

Not only do you have to endure the embarrassment of telling your advisor that you are leaving to others, but you may also have to deal with a lot of red tape. If you are not satisfied with your financial advisor, please take the following key steps to make the transfer as smooth as possible.

Key points

  • If you are dissatisfied with the performance of your investment portfolio, or if you have difficulties with existing financial experts, please consider changing your financial advisor.
  • Understand how your current company handles transfers and whether your expenses will be prorated.
  • View the terms and conditions of your management contract and collect your investment records.
  • Ask about any sales charges that may apply.
  • Your new advisor may be able and willing to handle the paperwork for your transfer.

Make the most of your financial advisor

What should you do?

So what is the smart way to make changes? First, check with your current company to understand how it handles the transfer. For example, ask if there are any timing issues with the conversion in the middle of the year. If the company charges an annual fee, will the fee be prorated if you leave before the end of the year? After you figure out these details, follow these four tips to ensure a smooth transition.

1. Read the contract details

When you initially signed a contract with a current consultant, you might have signed a management contract. These contracts usually include clauses on how to formally terminate the advisor-investor relationship.

In most cases, you only need to send a signed letter to your consultant to terminate the contract. However, in some cases, you may be required to pay a termination fee. Before you abandon your current consultant, it is important to read all these dirty details.

2. Collect your investment records

If you leave your doctor, they are required by law to provide you with a copy of your medical record. But what about your investment broker or financial advisor? The good news: According to a ruling implemented in 2011, your current advisor or broker must transfer the history of all your securities to your new advisor.

Although the advisor needs to transfer this information, it is important to retrieve a copy of the transaction history before you request the transfer. In this way, if there are any problems with the transmission, you will keep the records on file. You can simply make a request, and many investment companies have already provided investors with access to their complete transaction history through password-protected accounts on their websites.

When you transfer taxable investment accounts, it is especially important to record the cost basis of these securities. The cost basis is the original value of the account (usually the amount you paid to buy it), adjusted for stock splits, dividends, and capital return distribution.

Although this cost-based data will be included in your account transfer, it is best to compile this information into your own records (if you have a website, make sure to copy the file while you can still access the website). When you need to file income tax, you will need this information.

3. Give the dirty work to your new consultant

If you have already established a relationship with a new adviser, you may not even have to talk about the breakup with your current adviser. In many cases, your new company can request funds from your former company and transfer investment accounts.

Your new advisor may handle this process electronically through a system called Automatic Customer Account Transfer Service (ACATS). The ACATS system was developed by the National Securities Clearing Corporation and allows the transfer of securities from one trading account to another account in another bank or brokerage company.

If your advisor can transfer your account through ACATS, all you have to do is fill out some forms. The transfer process usually takes one to three weeks. However, if your transfer involves a hedge fund, you may have to wait a month or two. As part of this transfer, your advisor should obtain your investment history.

4. Ask about sales expenses

Before you transfer your account likes to a new consultant, ask about the sales costs you may face during the conversion. Some investments come with contracts that lock them in for a specific period of time. Most importantly, some of your investment accounts may be the exclusive accounts of your former advisory company, which means you cannot automatically transfer that account to the new company. If this is the case, you may have to pay some fees.

For example, if you have an annuity contract exclusive to the old company, you may have to cash it out before your new advisor can invest the proceeds. If this is the case, you may have to pay up to 10% of the contract value. This is called a deferred sales charge.

Some mutual funds also have holding periods of 5 to 10 years. If you have one of these funds in your old company, if you choose to switch before the end of the time period, you may have to pay or have deferred sales charges. The fee may be as high as 5% or more. However, this percentage usually decreases year by year.

Do the math, whether it makes more sense to sign an annuity contract with the company of the former adviser, hold a mutual fund before the deadline, or accept a conversion. If you want to make more money in the new situation, the one-time fee may be worth it. In addition, some investment companies or consultants will actually reimburse all or part of these expenses in exchange for transferring your business to them. It’s worth asking before you make changes.

Bottom line

Breaking up is never easy, especially when your financial advisor asks to break up. Before you pack your current consultants, please do your research and read all the rules in the contract. Ask your new advisor if you might face high fees. Finally, don’t forget to research your new consultant and beware of over-reward and over-optimistic promises. If the promised returns sound too good to be true, then they may be.


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