Switching financial advisers? How to navigate the process and the red tape

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Switching financial advisors should be more than a mechanical transfer – ideally, it’s a chance to reassess your goals and strategies with a new advisor and a fresh perspective

If you have decided it’s time to switch financial advisers, here are some suggestions for making the transition as smooth and rewarding as possible.

  1. Secure your landing before you jump ship. Begin the planning process with your new advisor before you notify your old advisor of your plans to terminate their service, and expect to have a period of overlap between your old and new accounts.
  2. You’re starting over – embrace the process. Switching financial advisors should be more than a mechanical transfer – ideally, it’s a chance to reassess your goals and strategies with a new advisor and a fresh perspective. Expect to start from zero and go through the entire financial planning process again, step by step. This may seem tedious at first, but be patient. Having a new plan that accurately reflects your current priorities and circumstances will be worth it. It’s okay to provide copies of your statements and documents from your old advisor to your new one, but you may also have to dig for additional documentation to complete your picture.
  3. Out with the old. Once you activate your accounts with your new advisor, your new account authorizations will trigger the issue of terminating your old ones. You can request that your new advisor handle this step on your behalf; you sign the transfer papers and allow your new advisor to take it from there.  However, don’t leave it at that. Contact your old advisor and obtain proof of rescission of his or her authority to trade your account. You’ll likely want to skip the face to face exit meeting with the old advisor (which has the potential to get emotional) but do whatever it takes to confirm that your account is terminated.
  4. The transfer may take a while. How big of a deal the transfer of your actual holdings is depends on what you owned in your old account.  If the securities in your old account are held by a third party, they won’t move at all, the authorization to access them will just change from your old advisor to your new advisor.  This applies to holdings like stocks, bonds, cash, and most mutual funds.  On the other hand, if you were invested in proprietary funds offered by your old advisor, it could take months to liquidate your holding and transfer it. Be aware that there may be asset transfer fees, although they are not likely to be more than $100. Certain mutual funds also have holding period requirements. If you sell before the period ends, you will incur a penalty fee – usually about 1 percent.
  5. Moving your assets may trigger tax consequences. If all you’re doing is transferring publicly available securities from one brokerage to another; the transfer occurs electronically and, since there is no actual sale involved, there won’t be any tax implications.  However, the sale of any securities (especially of proprietary products in your current account) will trigger tax consequences, so involve your accountant in the planning of this move.
  6. Transfer delays happen, so prepare accordingly. Expect your assets to be inaccessible to you for a period of time during the transfer process. You want to be sure you have enough cash separately available to you, and, if you use a credit card, that you have one that is not linked to the account being transferred.

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