How To Change Financial Advisors

Kat TretinaPersonal Finance Writer

For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans, and she holds certifications in student loan and financial education counseling.

Kat Tretina

Kat TretinaPersonal Finance Writer

Personal Finance Writer

Paul KatzeffDeputy Editor, Investing

Paul Katzeff is an award-winning journalist who has written four books about how to grow your 401(k) retirement nest egg and one about internet investing. Before becoming an investing deputy editor with Forbes Advisor, he was a senior reporter/writer at Investor's Business Daily, a correspondent for Money magazine, managing editor of the Boston Business Journal and staff writer for the Boston Herald American Sunday magazine. His work has been featured in The New York Times and The Wall Street Journal.

Reviewed

Paul Katzeff

Paul KatzeffDeputy Editor, Investing

Deputy Editor, Investing

Reviewed

Published: Nov 29, 2023, 2:33am

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

Getty

Financial advisors can be invaluable resources as you work toward your goals and plan for the future. A financial advisor can help you with everything from building a retirement plan to managing the investments that you pick—possibly with the advisor’s guidance—to accomplish your overall plan.

A 2023 study found that 37% of adults relied on the guidance of a financial advisor to manage their money. However, there may be times when you want to change advisors. It may be because your favorite advisor retired or you want a fresh perspective. Whatever the reason, changing financial advisors can be a big decision.

Still, before working with a new advisor, consider your reasons for changing advisors and what costs your new advisor charges.

Datalign Advisory

Access to thousands of financial advisors.

Expertise ranging from retirement to estate planning.

Match with a pre-screened financial advisor that is right for you.

Answer 20 questions and get matched today.

Connect with your match for a free, no-obligation call.

On Datalign Advisory's Website

Expertise ranging from retirement to estate planning.

Answer 20 questions and get matched today.

Reasons To Switch Financial Advisors

You may be considering switching advisors for a variety of reasons. Some of the most common include the following:

Your Advisor Is Retiring or Moving to a New Firm

Whether your favorite financial advisor is retiring or moving to another firm, needing a new advisor because your current one isn’t available is common.

A recent study from Cerulli Associates found that 37% of financial advisors are expected to retire by 2032, meaning about 40% of the industry’s assets will need to be transferred to an active advisor.

If your advisor is retiring or leaving for another firm, the advisor’s firm may assign you a new advisor, making your transition relatively seamless. But you also have the option of moving your accounts to another advisor at a different practice.

Your Advisor’s Fees Are High

According to the 2023 EY Global Wealth Management Research Report, competitive fees are the second most important factor investors consider when selecting an advisor; only investment performance was more important to survey respondents.

The cost of working with an advisor varies by their pricing structure, but common compensation models include commissions, fixed fees and asset under management (AUM) fees.

If you feel like your advisor’s fees are too high—or that your advisor pushes you toward certain products to increase their commission—it can be worth shopping around and comparing their rates to what other advisors charge.

Your Portfolio’s Performance Isn’t as Strong as You’d Like

When you’re investing for long-term goals, such as your retirement or a child’s college education, your focus should be on long-term performance. The stock market will have ups and downs, so it’s important to judge your returns over periods of several years or more.

For instance, the stock market has delivered annual returns of about 10% since 1929, according to the U.S. Securities and Exchange Commission. After adjusting for inflation, the annual return has been about 6% to 7%. To see how your portfolio measures up, you can compare its performance to that of a major stock market index, such as the S&P 500 or the Nasdaq 100.

However, keep in mind that benchmark indices don’t take into account individual circumstances. For example, investors who are nearer to retirement may prefer a more conservative portfolio.

Why? They want a lineup of securities that is less volatile than a portfolio holding a lot of stocks and funds focused on more innovative companies.

If the performance of your portfolio falls short of the major indices, ask your advisor why that is before making a switch.

Many investment advisors aim to beat the performance of the major indices, but the majority aren’t successful over the long term, says Todd Rosenbluth, head of research at financial service research firm VettaFi.

You Need More Holistic Advice

Previously, many people used financial advisors primarily for investment advice. However, a major trend in the financial advisory industry is a focus on more comprehensive financial guidance, including financial advisors that provide estate planning, debt management or healthcare planning services.

If your current advisor is primarily an investment advisor, switching to an advisor who specializes in the areas where you need help can help you achieve your goals.

You Want a Fiduciary Advisor

A fiduciary advisor must give you the best advice for your situation, regardless of how it affects their own compensation.

But not all financial advisors are fiduciaries, and they aren’t all held to that standard. Some advisors may encourage you to invest in certain securities or to purchase annuities or insurance policies because it increases their commission.

If you don’t feel as if your advisor is working in your best interest, switching to a fiduciary advisor may be a good decision.

How to Switch Financial Advisors

If you’ve decided to change financial advisors, follow these steps to ensure a smooth transition:

1. Review Your Current Advisor Agreement

Before contacting potential advisors, review your contract or agreement with your current advisor. Your contract likely outlines what you need to do to terminate your agreement, including any fees or penalties you may have to pay. In most cases, you can cancel your agreement by submitting a written notice and paying a termination fee.

One critical detail to consider is whether your money is in any proprietary investments. Some brokerages have funds that only individuals with a current brokerage account can invest in. If you switch to an advisor with another firm, you may not be able to keep your money in those funds.

2. Collect Your Statements and Records

Next, gather all of the information about your accounts that your current advisor handles. Documents to collect include recent statements, insurance policy binders, annuity contracts and retirement plan details.

Make sure you have copies of everything for your own records and, if your advisor has been handling all of those accounts for you, that you have the necessary login credentials.

3. Find a New Advisor

There are many ways to find financial advisors, from recommendations from friends and family to search engines. You can also use industry databases to find advisors near you, including the following:

LetsMakeAPlan.org is a database of certified financial planners (CFPs).
The National Association of Personal Financial Advisors.

Create a list of several advisors who look like they might suit your needs. Then contact them to discuss their fees, specialties and investment strategies.

4. Consider Fees and Other Costs

When comparing advisors, keep in mind that fees can cut into your returns. Other charges can also erode the value of your assets. When evaluating your options and changing advisors, keep these costs in mind:

Advisor fees. The majority of advisors—approximately 95% of advisors registered with the SEC —charge a fee based on the client’s AUM, while nearly 50% of advisors charge either a fixed or hourly fee, or both. Advisors can charge one type of fee or a combination thereof depending on the type of services they provide. AUM under management fees range from 0.50% to 2.00% of the AUM, while hourly fees range from $150 to $400 per hour. Fixed-rate advisors generally charge between $1,000 and $3,000.
Tax consequences. If you must buy and sell your existing securities to transfer them to a new advisor, you could be subject to capital gains taxes. Talk to your selected advisor about strategies to transfer your assets as efficiently as possible to minimize your tax bill.
Added fees. Some advisors charge added fees, but they may be listed deep in the fine print. Common so-called hidden fees include trading commissions, trading fees and fund expenses. SEC-registered brokers are required to disclose all of their fees in their ADV forms, which you can view on the SEC’s Investment Adviser Public Disclosure (IAPD) website.

5. Transfer Accounts

After researching your options and getting clear on what costs will be involved, you can select an advisor you’re comfortable with. Now you’re ready to transfer your accounts to your new advisor.

Typically, your new advisor will handle the process for you. The advisor will use the National Securities Clearing Corporation’s Automated Customer Account Transfer Service (ACATS) to transfer your accounts. After your advisor submits the request, it can take days to weeks for the entire process to be completed.

If you’ve been putting off changing financial advisors because you thought it would be too complicated or time-consuming, don’t worry. Your advisor can help you navigate the process to ensure a smooth transition.