Switching Financial Advisors: When, Why and How to Do It Right

switching financial advisors pasadena ca


Updated Aug. 4, 2022

Breaking up is hard to do.  You’ve probably done it anyway at some point in your love life.  But…. have you done it in your financial life?

If you’re like most people, you probably haven’t hired a lot of financial advisors, so it can be hard to know when it’s time for a change.  But if you’re not getting the attention or results that you were expecting, it may be time to think about making a change.

As we experience more volatility, now is a particularly important time.  Your holdings should be watched closely and rebalanced regularly.  If you don’t have an advisor who is paying close attention to your money, it may cause you more pain than you expect when the market cycle inevitably changes.

So it’s a good idea to review your relationship.  Here’s some questions to ask yourself:

If the answer to any of these questions is “No,” it may be time to break up with your financial advisor and find one that will serve you better.

Always Find a New Advisor First

First, however, it’s critical to find a new advisor before making any changes.

That means before you make any move.  If you don’t, it may cost you.  Fortunately there’s an easy way to minimize those costs and the hassle of switching:  have your new advisor help manage the change to the new firm.

What are the costs you could potentially be faced with?

Capital Gains and Taxes.

Switching advisors will almost always result in changes to your investment portfolio.  In markets like this one, it may include taking profits on positions that have increased in value.  This can generate capital gains and/or additional income taxes.

Here’s where your new advisor needs to earn your business.  They should work with you (and possibly your tax accountant) to make sure any changes are done in the most tax-efficient manner possible.

But, not all new advisors may want to help you with optimizing your tax situation. If your new advisor isn’t willing to help that may be a warning flag.  An advisor with your best interests in mind should always make recommendations that minimize negative tax consequences when possible.

Transaction Costs.

Another potential way you might get hit is with transaction costs.  When your holdings are transferred, your new advisor will likely recommend some changes.  That will require some selling and some buying of investments.  Fortunately transaction fees for most investments are quite small these days.  However, when big changes are made to your portfolio, they can still add up.

The best thing to do?  Make sure that all the changes are really necessary.  You can also ask the new advisor to waive initial transaction fees. It never hurts to ask.

Loads and Annuity Fees.

If you happen to own variable annuities or load mutual funds, these products usually charge sizable fees when you sell them.  These products are controversial because of these high fees.  However, if you already own them, your new advisor should evaluate the cost and benefit of sales of these products.  While it may be necessary to sell them (and stay away from high fee products in the future), a good advisor should always evaluate the pros and cons and explain it to you.


Discuss These Issues Before Switching Financial Advisors

Take these questions to your new advisor.  Before you agree to make the switch, ask them how they will handle these issues.

Once you get answers that you are happy with, then you are ready to ask your new advisor to help move your assets over. This means:

  • Helping you with the paperwork to transfer assets from your previous firm to the new one. These documents can be confusing to wade through if you’re not familiar with the terminology, so make sure you get this process explained to you.
  • Making sure the money and assets are transferred into the right kind of account. This is critical to avoid any type of unplanned tax issues.
  • Ensuring transfers occur in a timely manner. Normally transfers go as planned, but it is always best to have someone monitoring the progress.  Your new advisor can do this for you.

The Best Part

If like most of us, you hate break-ups, your new adviser can be the one to deliver the news to your old advisor.  You don’t even need to have that awkward conversation.  This is comfortable for most people and as financial advisors, we have no problem doing it on your behalf.

The Payoff

Once the assets are transferred, you’re on your way.  You should be receiving some financial planning help early on to make sure all aspects of your financial life are in order.  A full “checkup” by a new advisor can make sure you are on track with retirement planning, wills and estate planning, college funding and anything else needed to achieve your financial goals.  Then a good financial advisor will schedule periodic check-ins to make sure your plan still has you on track to achieve your goals.

Always Be Vigilant

But remember, always keep an eye on what your advisor is doing.  Many firms tend to turn on the attention early on, then can let the attention you get slide later.  Your money is too important, so make sure you continuously evaluate the relationship and make sure you are getting what you were promised.



John Odell, CFP® is CEO of Arroyo Investment Group, LLC, a fee-only financial planning and investment management firm based in Pasadena, California. As a GIPS®-compliant firm, we bring institutional quality, high performance investment management and comprehensive financial planning to individuals and families.  Together with Capital Research + Consulting, our sister firm, we collectively manage over $4 billion of assets for individuals and retirement plans.  Visit us at https://arroyoinvestmentgroup.com/.