Breaking up is hard to do, even when it comes to firing your financial advisor.
Whether it’s a mismatch of investment strategies, a lack of communication or even ethical concerns, the decision to part ways with your financial advisor can be stressful.
In this guide, we’ll walk you through the process of firing your financial advisor step-by-step, along with how to find a new financial advisor who better meets your needs.
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1. Review your original contract
Before you initiate the breakup, make sure to revisit the original management contract you signed with your financial advisor.
This document should outline the steps you need to take to formally terminate the relationship, such as providing written notice to your advisor.
You may also need to sign authorization forms and transfer documents, as well as review account closure instructions.
Understand potential fees
Your original contract should also outline any fees or penalties you might encounter when firing your financial advisor.
Some fees and penalties you might encounter include:
- Early termination fees
- Some advisors may impose penalties for terminating an annual contract early. Others may prorate their annual fee if you terminate the relationship mid-year.
- Sales charges
- Some mutual funds impose sales charges when you sell shares before a specified time frame.
- Account closure fees
- Your current advisor may impose a fee for closing your account.
If you hire a new financial advisor, they might offer to reimburse you for all or some of these fees when you transfer your account to their firm. Ask and see if this is an option before making the switch.
2. Decide your next move
After choosing to part ways with your current financial advisor, you’ll need to determine how you’ll manage your finances moving forward.
Here are three options:
- Do-it-yourself: If you choose to take control of your investments, you’ll need to set up new accounts, select investments and monitor your portfolio’s performance. This option gives you complete control but also requires an understanding of the stock market and investment strategies.
- Use a robo-advisor: If you’re simply looking for a low-cost way to manage your investments, using a robo-advisor is a good option. Companies like Wealthfront and Betterment use computer algorithms to automate portfolio management at a low cost. However, you’ll miss out on the personalized advice offered by a financial professional.
- Hire a new advisor: Opting for a new financial advisor may be a good move if you don’t have the time or energy to independently manage your portfolio. Make sure to find a professional who aligns with your financial goals and investment philosophy by researching and conducting interviews with potential candidates.
3. Request records from your former advisor
If you hire a new financial advisor, they can obtain records from your former advisor on your behalf. It’s a relatively easy, streamlined process.
Your new financial professional will schedule an electronic transfer of your records from your former advisor to ensure a smooth transition, which can take about two weeks to complete.
Just be aware that some assets transfer easier than others. Retirement accounts and tax-deferred accounts transfer easily, for example, but proprietary funds, certain annuities and some other assets unique to a specific investment company may need to be sold or stay behind in an old account.
“Your new advisor will walk you through all of that,” says Charles Sachs, chief investment officer at Kaufman Rossin Wealth in Miami. “Some firms can conduct an analysis of your current portfolio to see if there might be any issues transferring assets ahead of time, then walk you through your options.”
4. Gather your investment records
Before firing your financial advisor, make sure to obtain records of your investments, tax documents and account information. This is especially important if you’re choosing to DIY your investments.
“You can’t go back to your old advisor and say ‘Can I get my 1099 tax form from two years ago?’ if they no longer have access to your account,” says Sachs.
Make sure to also gather your cost basis information, which includes the original purchase price of your investments. You’ll need this when calculating capital gains or losses at tax time.
Signs it might be time to break up with your financial advisor
If you’re considering ditching your financial advisor, you’re not the only one.
Overall investor satisfaction with full-service investment advisors fell 17 percentage points from 2022 to 2023, according to a survey by JD Power, a market research company.
Here are some red flags that it’s time to move on:
- Bad advice leads to poor performance: One of the most glaring signs that it’s time to let go of your financial advisor is poor performance in managing your investments. If you find your portfolio consistently underperforms compared to the market, it’s a red flag.
- Communication breakdown: Effective communication is the backbone of any successful advisor-client relationship. If you’re finding it increasingly difficult to get in touch with your advisor, or if they fail to address your concerns in a timely manner, it might be time to move on.
- High fees and hidden costs: Another sign of trouble is exorbitant fees that eat into your returns. Advisors should be transparent about their compensation structure. If you notice hidden costs or feel you’re being overcharged, it’s time to reevaluate the relationship.
- Mismatched investment philosophy: Your financial advisor should align with your investment goals and risk tolerance. For example, if you’re risk-averse and your advisor is pushing high-risk investments without a clear explanation, you’re likely better off moving on.
How do I fire my financial advisor?
No matter how you choose to part ways with your financial advisor, make sure to keep the interaction professional and respectful.
While an in-person meeting can provide closure, it might not be necessary. An email or phone call can suffice, especially if the relationship has deteriorated. Choose whatever method you’re most comfortable with.
Whether the conversation takes place over email or in-person, be polite but get to the point.
“People may be nervous, maybe they’ve worked with that person for 20 years,” says Sachs. “But the thing is this happens all the time. Accounts come in, accounts go out. We understand. Firms want to make the transition as smooth as possible for the client.”
And before you go, ask your current advisor to halt any trading and avoid making changes to your portfolio.
“The last thing you want is for them to buy or sell things inside the account that the new advisor may not want,” says Sachs.
How to find a new financial advisor
When it comes to finding a new financial advisor, research is key. Start by gathering recommendations from friends, family or colleagues who’ve had positive experiences.
Online databases from organizations like the CFP Board and XY Planning Network can also help you find financial advisors in your area and narrow down your options.
Next, interview potential advisors to gauge their investment approach, experience and fee structure. Make sure your communication styles align. Finally, request references and conduct a background check on any potential candidates.
Bottom line
Firing your financial advisor can be uncomfortable, but if you’re not getting the advice you need, ending the relationship is in your best interest. After all, it’s your money and financial future. Just make sure to review your original contract before calling it quits and carefully research new potential advisors before making the switch.
