When and How to Switch Financial Advisors

Reasons for Switching Financial Advisors

Before considering how to switch financial advisors, you may want to consider whether to switch financial advisors. Different people have different reasons, of course. Some may be disappointed with their advisor’s performance, while others might feel like they’re not a good fit personally, or maybe you’ve outgrown your current advisor’s capabilities. 

Below, we’ve rounded up a few of the most common reasons people decide to switch financial advisors. If you can identify with any of these themes, it’s probably time to consider working with a new advisor.

1. Underperformance Compared with Benchmarks

Investing is one of the most important steps in growing your wealth — and if your financial advisor isn’t investing your portfolio appropriately, it can have a significant impact on your financial wellbeing. Markets have ups and downs and so will your portfolio, but if an appropriate benchmark is selected for comparison, your portfolio should largely stay close to it. 

A benchmark is usually comprised of several market indices that should approximate your portfolio.

• First – it is important to make sure you understand the benchmark your advisor is using. Is it appropriate? Does it make sense, given your financial goals and how you plan to achieve them? If you believe your benchmark is appropriate, and you routinely underperform it, it is a good time to assess whether your advisor is investing your account appropriately. 
• If your advisor cannot explain why your benchmark is appropriate, or why they are underperforming, consider taking action sooner rather than later.

   

Investment returns and time together are a major contributor to your financial growth, and if you wait too long to invest, or invest appropriately, it can have a significant impact on your future financial wellbeing.

2. Misalignment of Financial Goals and Strategies

The right financial advisor will listen to your goals and devise a smart strategy to help you reach them. The wrong one may not take your goals into account and/or come up with an ineffective strategy.

“Good financial advisors genuinely want to understand your goals and priorities,” says Thuong Thien, a Principal and Senior Financial Advisor at Team Hewins. “They show that they care. They want to know what you are worried about and what your hopes and dreams are. Good financial advisors probably don’t have all the answers, but they ask good questions, know how to find the answers, and take the time to do so.”

• One sign that your financial advisor isn’t taking your financial goals seriously is if they haven’t talked with you extensively about topics such as investments, retirement, home purchases, and estate planning. A solid financial plan should always map back to these goals — otherwise, it’s not much of a plan at all.
• On the other side of the equation is the strategy that helps you reach those goals. If your advisor’s strategy doesn’t include a diversified portfolio based on evidence-based research, it likely won’t be reliable.

3. Lack of Communication and Responsiveness

Communication is an essential component of the advisor/client relationship. If your financial advisor doesn’t proactively ask you for information, reach out to you with updates, or respond to your messages in a timely manner, it’s a troubling sign.

For one, it erodes trust. A lack of communication suggests that you’re not a priority for them. And if that’s the case, they likely aren’t putting in the time and effort that an effective financial plan requires. 

What’s more, it can hinder progress. To ensure the most effective plan possible, your financial advisor will need to know about updates such as you getting a new job, receiving your W-2 tax form, or expecting a baby. You’ll also need to reach a consensus when it comes time to make important decisions, such as whether to refinance your mortgage. 

None of that is possible without regular, clear communication — making it a must-have in your financial advisor.

4. Opaque Fee Structure and High Costs

You’ve almost certainly heard of the old adage, “You have to spend money to make money.” While that holds true when it comes to making smart investments, it doesn’t mean you should pay an arm and a leg for financial planning.

A few red flags when it comes to fee structure include:

• Vague details on how the firm gets paid
• Commission-based compensation (more on that later)
• Surprise charges on your invoices
• Inconsistencies or frequent changes of investment products or strategy

If you are unsure of the total cost associated with your investments and financial plan, get a second opinion. We would be happy to provide a complimentary review of your financial plan.

While good advice isn’t free, it should come at a fair, transparent price. If you don’t understand how much you’re paying your advisor or the fees seem unreasonably high, it’s time to consider switching financial advisors.

5. Ethical Concerns or Lack of Trust

Working with a financial advisor requires an enormous amount of trust. When somebody is making strategic recommendations and managing your portfolio, you need to know that all of their suggestions and actions are in good faith. This is important not just from a financial perspective, but from a legal one as well.

Some signs a financial advisor may not be ethical and trustworthy include:

• Pressuring you to make a certain decision
• Unreasonable promises, such as: “I can grow your assets by 200% before the end of the year.”
• Repeatedly pushing specific policies or products
• Making decisions without consulting you
• Hinting that they have access to insider information or proprietary products that no one else has

   

If your financial advisor has done any of the above — or breached your trust in any other way — it’s time to move on. When it comes to something as important as your finances, you can’t afford to give second chances.

6. Changes in Your Situation or Needs

Often people will look to switch financial advisors when their situation and needs have changed. Maybe your financial picture has gotten more complex over time and the solo advisor you selected doesn’t have the depth to meet your needs. 

Having kids, buying an investment property, setting up a trust, or building a business all add complexity and change what you need from your financial advisor. 

When you initially picked a financial advisor, maybe you only needed investment advice. But now you need things like making sure you have the right estate plan in place, are proactively managing your tax burden, have enough insurance and more. 

If your financial situation has changed since you first selected a financial advisor, it’s likely time to consider an advisor and a firm that can meet all of your needs today and in the future.

Signs of a Good New Financial Advisor

A key component of how to switch financial advisors is finding a new one. After working with a not-so-great financial advisor, you might be wondering: Do I even need a financial advisor? But there are plenty of great advisors out there — and working with the right one comes with some major benefits. 

People working with financial advisors are more likely to feel confident that they can afford retirement (74%), pay unexpected costs (80%), and achieve long-term financial stability (75%).2 And they don’t just feel more confident — they perform better. Research has shown that financial advisors add an average of 3% per year in additional growth for their clients’ investment portfolios.₃

So, what are some hallmarks of a good financial advisor? We’ve summarized some of the top traits to look for in an advisor below.

1. They Put Your Interests First

Before even speaking with a potential financial advisor, you should find out whether they are a fiduciary. Fiduciaries are legally obligated to act in the best interest of their clients rather than their own.₄ 

Don’t just ask, “Are you a fiduciary?” Also ask, “Has your firm always been a fiduciary? Or has it switched in recent years?”

Some financial advisors get commissions when clients select certain products. As a result, they are more likely to recommend those products, even if it’s not what’s best for the client. With fiduciary financial advisors, you can trust that any advice they offer is based on their knowledge and experience — not a desire for a kickback.

You can also trust that a fiduciary will never trade without your authorization, hide conflicts of interest, make excessive trades, or generally misuse your money for their own gain.

2. They Have a Solid Track Record and Credentials

Evaluating a financial advisor’s past performance and experience can help you determine whether they’d be a good fit for you. You may want to start by checking to see if they’re a CERTIFIED FINANCIAL PLANNER™ professional. To obtain this certification, they must: 

• Earn a four-year college degree
• Complete official CFP® coursework (typically 12-18 months)
• Pass the CFP® exam
• Gain 4,000 to 6,000 hours of experience
• Sign a legally binding ethics declaration 
• Pass a background check

   

You may also want to use SEC or FINRA search tools to learn more about your potential advisor’s career path, registrations, and whether they’ve been named in any lawsuits.

To evaluate past performance, consider:

• Asking them to cite specific wins they’ve helped clients achieve 
• Checking their LinkedIn portfolio
• Asking them to provide references (clients you can speak with)

3. They Offer Personalized Advice

Your financial adviser should spend a significant amount of time getting to know you, your current finances, and your goals. 

This includes understanding your current:

• Salary
• Other sources of income
• Portfolio
• Insurance policies
• Budget
• Expenses
• Debt

They should understand your priorities and goals as well. This might include being able to:

• Pay for your children’s or grandchildren’s college tuition
• Retire by age 60 
• Purchase a vacation home
• Provide for your family, even in the event of your death
• Understanding how much you need to retire 
• Feeling confident about your finances
  

Tip: It’s always a good sign when a financial advisor asks questions or encourages you to go into additional detail.

Your financial plan should account for every one of these goals and show you how to reach them. A good financial advisor will also check in periodically to see whether your priorities or circumstances have changed. If so, they can update your plan accordingly.

4. They Communicate Effectively and Regularly

As we mentioned above, communication is the key to an effective financial advisor/client relationship. It should be a true partnership where each person feels comfortable sharing information with and reaching out to the other.

It’s a great sign if your financial advisor:

• Proactively schedules your check-ins
• Reminds you to complete pending tasksfinan
• Contacts you if they need additional information
• Responds to your emails promptly – for example, within one business day.

   

When both parties are up to date and on the same page, it becomes much easier to develop a sound financial strategy.

5. They Are Proactive and Forward-Thinking

Financial wellbeing is about ensuring a bright financial future, not just being comfortable in the moment. Good advisors know this and will adjust your plan over time as needed. 

Changes such as a divorce, new tax legislation, or market forces including inflation or a bear market can all affect your financial plan. And to stay on track to reach your goals, you should update your plan accordingly. 

Your financial advisor should proactively schedule check-ins at least on an annual basis. Beyond that, they should contact you in the wake of significant updates and advise you of emerging trends. 

Note that proactive, however, does not mean reactive. Making changes based on every small market update or trend — like a particular company’s stock hitting a hot streak — is not a wise move. It’s about seeing the bigger picture and taking it into account, whether or not you actually need to make significant strategic changes.

How to Change Your Financial Advisor

After you’ve parted ways with your old financial advisor and found a new one, it’s time to get down to the brass-tacks of how to switch financial advisors. 

Take some time to think about the different steps involved and what you need to do. This can help reduce stress, ensure a smooth transition, and start your new partnership off on the right foot.

1. Review Your Agreement

Before you actually notify your current financial advisor, check the contract you signed when you began working with them. Advisory agreements usually have certain terms and conditions around termination that you have to abide by.

Your agreement might, for example, state that you have to give your advisor a month’s notice in writing. It may also tell you the cost of changing financial advisors. In some cases, you may need to pay a termination fee to exit the agreement earlier than the originally agreed-upon end date.

Regardless, the agreement should give you an idea of what you need to do and which fees (if any) you are subject to when it comes time to fire your financial advisor.

2. Document Your Decision

Calling your financial advisor to let them know of your decision probably isn’t required, but it can help make for a more amicable split. 

If you’re wondering how to tell your financial advisor you are transferring, consider writing down a list of reasons why you decided to part ways. And if you’re worried about how to politely decline a financial advisor who wants to win you back, referring back to these points can help you maintain your conviction.

After this conversation, it’s best to send written notice of termination. Often, a simple email will do. You don’t need to get into the reasons why here — this is just for your and the advisor’s records. Stating that you wish to terminate services effective immediately (or at a certain date, if you choose) and thanking them for their services is all that’s necessary.

3. Plan the Transition

Your new financial advisor can help advise you on all the steps needed to transition from your old advisor. Among the most important actions to take is requesting your financial records. 

Federal law requires your former financial advisor to provide your new one with a record of both your current holdings and historical transactions.₁ You should also make sure to get a copy of other documents, though. This might include your personal financial plan, past tax forms and returns, and estate planning documents.

Once you have all of this information, you should be ready for the next step: executing the transfer.

4. Execute the Transfer

Your new financial advisor will take the reins when it comes to executing the transfer of assets and information. Usually, this is done through the Automated Customer Account Transfer Service (ACATS). ACATS is an SEC-regulated tool that allows securities to be transferred from one advisor, firm, or account to another.

Keep in mind that some of your holdings may be easier to transfer than others. Most ETFs, mutual funds, and retirement accounts are simple to transfer, but annuities and proprietary funds may be more complex. 

In some cases, you may need to maintain those holdings with the current custodian. Other times, there can be tax implications associated with switching financial advisors, such as if you have to sell certain holdings and transfer the gains to your new accounts.₂

In any case, your new financial advisor should be able to advise you of any challenges posed by transferring certain assets as well as strategies to help overcome them. Once executed, transfers typically take around one to three weeks.

5. Confirm Termination and Transfer

Your new financial advisor should advise you once all of your holdings have been successfully transferred. They will also likely reach out to your former financial advisor to ensure that there were no complications on their side.

On your part, it can be prudent to reach out to your former financial advisor as well to confirm the termination of your agreement. You may also want to double check that they have sent you all of your documents and account information on file.

With this information and your added input, your new financial advisor can begin crafting a financial plan. This time, it should be specifically designed to help you reach your personal goals.

6. Don’t Forget, Maintain Your Tax Records

Once you have made the switch to a new financial advisor, be more diligent than usual in ensuring that your tax records are up to date, available, and accessible. Make sure that you have online access so that you are able to pull records as needed for your new advisor and your CPA. Check to see that your address is up to date so that your tax forms, such as 1099 forms) will be mailed to you in a timely fashion during tax season.

Changing Financial Advisors? Find the Right Fit at Team Hewins

Thinking about how to break up with your financial advisor can be nerve-racking. Not only do you have to learn how to fire your financial advisor — you also have to learn how to find a new one. But with the information above, you can be confident in knowing how to switch financial advisors.

And if you’re looking for a fee-only, fiduciary, and highly qualified financial advisor, we at Team Hewins would love to help you. Our team is made up of knowledgeable CERTIFIED FINANCIAL PLANNER™ professionals with years of experience. Schedule your free consultation today to discuss how you can start on the path to financial wellbeing.