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Why Should You Change Your Financial Advisor?

Oct 24, 2023 By Susan Kelly

If you're thinking of switching your financial advisor, you're not all on your own. According to research, nearly 60 percent of investors have switched advisors at least once. The main reasons to switch advisors include the lack of communication, a deficiency of useful advice and suggestions, and poor performance in the market. If you're unhappy with the performance of your portfolio or both are just water and oil, there is one thing that's certain you'll end out better over the long haul rather than worse.

How Should You Do It?

The first step is to consult with your current company to learn the process for transfer requests. Find out if there are problems with timing when making the change mid-year. If the company charges the annual fees, inquire about the pro-rated amount if you quit before the year's end. Once you've found those particulars, you should use these tips to ensure a smooth transition.

Read Contract's Fine Print

If you were the first to sign on with your advisor of choice likely have signed a management agreement. Most of these contracts contain the option to end your advisor/investor partnership. In most cases, you will need to send a written email to your adviser to end the agreement. Sometimes, there may be a need to pay a termination cost. Before you leave your advisor of choice, go through all the important information.

Collect Investment Records

If you decide to leave your physician, the doctor is required by law to provide you with medical record copies. But what happens to your financial or investment broker advisor? There's good news: A federal law stipulates that your current broker or advisor provide the historical records of all your assets to the new advisor. While advisors are legally required to provide the information, getting a copy of the transaction's history is crucial before you request the transfer. You can access the information in your file if there's a problem with your transfer request.

Many investment companies give customers access to their complete transaction history by allowing them to log in using a password-protected account that is accessible on their site. It is important to copy the information before the time you are denied access to the website. When you copy the investment account, make sure you don't ignore the information about the cost basis for tax-exempt securities. The cost basis represents the cost for the security adjusted to account for stock splits, dividends, and return-of-capital distributions. This is mandatory information to fill out tax purposes on the IRS Schedule D that you must prepare to report tax-free gains.

Leave Dirty Work to Your New Advisor

Suppose you've already decided to choose an advisor with who you would like to work. You may not need to speak to your current advisor regarding your choice to switch. Your new company can ask for the balance of your account and the transaction logs from your previous firm. Your new advisor will likely take care of this electronically through an Automated Customer Account Transfer Service. The ACATS system allows security transfers from one account to an alternative brokerage or bank. Transfers typically take between one and three weeks. It is possible to delay the transfer for up to a month or two if your transfer involves the money you have that was invested in an investment fund.

Ask About Fees, Penalties, and Sales Charges

Certain investments have contracts that lock them in for a specific time. When you decide to change, determine what you'll pay in charges. Furthermore, some of your investments may be a part of your account that is exclusive to your advisor's firm. If that is the situation, you cannot immediately transfer these assets to a new company. You could be required to sell the assets and pay charges and penalties.

For example, if you hold an annuity agreement owned by the previous firm, you may need to take it in cash and transfer the money to the new advisor you have chosen for investment. It could be necessary to pay at least 10% of the value of the contract, also known as deferred sales costs.

Check Your Mutual Fund Fees

Certain mutual funds have 5- to 10-year time frames for holding. If you own some of them in your previous company, making a payment for a sale fee could be necessary if you decide to transfer before the end of the period. This charge maybe 5 percent or more. The rate typically decreases each year.

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