Time for a Change



Changing financial advisors is never an easy process—but it doesn’t have to be an expensive one.



By Jack Waymire

Every January, after reviewing their returns for the prior year, many investors decide to change financial advisors. The top reason is poor performance. The next most frequent reasons are excessive expenses and poor service, usually a lack of accessibility, communication and reporting.

Firing your advisor may be your response to unmet promises and expectations, but do not underestimate the impact of this decision. Changing advisors can be expensive and risky. Do it the wrong way and you may well be worse off than if you’d stayed put.

Here are nine tips that will help you transition to a new advisor while minimizing unnecessary risk and expense.

1. Find the New One First

Select a new advisor before ending your relationship with your current one. That way, the new advisor can facilitate the transfer of your assets to his firm or custodian. He or she can also review your portfolio and determine if any investments need to be sold quickly due to negative outlook.

2. Portfolio Review

As soon as you’ve chosen a new advisor, provide your most recent brokerage statement for his review. He may retain some investments to reduce transaction costs or minimize taxes, or he may time sales to spread tax consequences over multiple years. But the advisor will probably urge you to dump bad investments even if there are tax hits; few advisors want to be saddled with someone else’s bad picks.

3. Put It in Writing

Don’t terminate your advisor or provide instructions over the phone. Telephone communications can be misinterpreted and leave no written record. Instead, send the advisor a registered letter that terminates his services. (Send a copy of that letter to your advisor’s supervisor.) But be civil: You never know when you may need to ask your former advisor for a missing document or information about a security in your portfolio, and it’s hard to do that if there’s bad blood between you.

4. Trading Authorization

Decide if your current advisor can continue to trade your account until its assets are transferred to your new advisor. If you’ve received bad news regarding one of your investments, you may want the current advisor to sell it right away. On the other hand, you may not trust your current advisor, in which case, freeze your account.

5. Know Your Options

You can instruct your current advisor to transfer your securities to your new advisor’s firm or liquidate the investments and transfer cash. It’s an important decision: Liquidating securities can create tax events, so only sell if absolutely necessary.

6. Liquidity Issues

Some assets may not be easily transferable because they are invested in illiquid products or there are sales penalties if you sell the products—a variable annuity, for example, could require you to pay a 7 percent sales charge for selling the product within a year of purchasing it. Ask your new advisor for advice.

7. Protect Your Retirement Funds

If your assets are held in an IRA account, make sure the movement of assets to a new advisor is conducted as a trustee-to-trustee transfer. If the transfer is not conducted properly, you may expose your assets to tax penalties.

8. Consider Your Tax Consequences

If your assets are held in a taxable account, it makes sense to transfer the assets to the new advisor in-kind. The new advisor will review your investments and recommend a sales strategy to minimize capital gains hits. Most investors have a mixed bag of gains and losses, so a tax minimization strategy can save you money. (If your portfolio has a lot of unrealized gains, you probably wouldn’t be changing advisors.)

9. Don’t Blame a New Advisor for Mutual Decisions

Your new advisor may recommend holding certain investments to avoid tax consequences. If you agree, don’t hold the advisor accountable for their performance. In my next column, I’ll look at the process of finding and choosing a new financial advisor.



A former wealth manager, Jack Waymire is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and the founder of Paladin Advisor Research (, a leading information services and research company.


This article originally appeared in the December/January 2012 issue of Worth.