Wed, Nov 23, 2022 4:01 AM
By Ben Le Fort, Wealth of Geeks
With the economic upheaval rocking the world right now, not many people can afford to lose a few hundred or a few thousand dollars - especially when you've trusted your reserves and retirement to a professional.
Has your financial advisor lost you money? Maybe it's time to lose your financial advisor. Breakups are never easy, and firing your financial advisor is no exception. But if you follow the right steps, the process can be relatively painless.
One of the most important financial decisions we make is deciding who will provide us with the advice and guidance we need to save and invest our money. This is especially important if you are paying for financial advice.
If you're unhappy with the advice you're receiving, it may be time to part ways.
Before making any major moves, it's a good idea to reflect first on what may be going wrong. Before pulling the pin, your situation could be resolved simply by talking it over with your advisor.
"Think about why you are unhappy with your advisor - is it poor performance, irregular communication, high fees, or a misunderstanding? Most advisors want happy clients, so explaining why you are unhappy may easily fix the problem," said Rob Lloyd, Chartered Financial Analyst, and president at Lloyds Intrepid Wealth Management.
On the other hand, if you are sure it's time to move on, the best advice is to rip the bandaid off.
"People generally look to avoid confrontation, and firing your advisor can be very uncomfortable," said Erik Nero, Certified Financial Planner and president of First Step Wealth Planning. "But if the advisor is no longer proactively exploring what is relevant to the client, the risk of maintaining the relationship could outweigh keeping it."
There are four steps you need to take when you're ready to fire your financial advisor.
Step 1: Review Your Contract
When you first hired your financial advisor, you likely signed a bunch of paperwork. Read through these documents carefully, and you should find a clause about how to terminate the relationship with the advisor.
If you need help finding the contract, ask your advisor or their administrative assistant for a copy of your contract. There are two particularly important sections of that contract.
First, find the section with instructions on how to terminate the relationship. Often you are required to provide the advisor with a signed letter formally terminating the relationship.
Second, check to see if a termination fee is involved upon severing your relationship with the advisor and transferring your savings and investments elsewhere. These fees may be charged by the advisor themselves, the investment funds they chose for you, or both. It's critical to ensure you are aware of any termination fees before you fire your advisor.
Step 2: Decide What You're Going To Do Next
Before you fire your advisor, it's a good idea to know what you will do with your money going forward. You have three options to consider.
First, if you are comfortable managing your own money, you could transfer investments to an online broker and handle things yourself.
Second, you can find a new financial advisor. If you want someone to guide you through the process, you'll want to hire a new financial advisor you can trust. Consider hiring a fiduciary "fee-only" financial advisor. Fee-only advisors provide unbiased advice and do not have a financial incentive to put your money in a certain fund or sell you insurance.
Third, open a robo-advisor account online. Robo-advisors like Wealthfront and Betterment are good alternatives for people not quite comfortable managing their investments themselves but aren't in a position to pay the typically higher costs of a financial advisor.
Do your homework and choose the path you are most comfortable with moving forward.
Step 3: Request a Copy of Your Investment Records
The final step before firing your advisor is to request a copy of your investment records. You have a right to these files with valuable information on your investing history.
It's important to save your investment records in a safe place or send them to your accountant. You will need these records at tax time to prepare your income tax returns.
Step 4: Fire Your Advisor
It's finally time to fire your advisor. Refer back to your contract with your advisor, as it likely details the exact process that must be followed to terminate the relationship.
If you are required to provide the advisor with a signed letter, you'll have two options for delivering this letter.
If you have decided to start working with a new advisor, ask them to handle the uncomfortable part of firing your previous advisor. They will likely provide you with a few forms to sign and might be able to handle the rest with your old advisor on your behalf.
Or, if you're planning to handle your finances on your own, be sure to follow the termination instructions in your contract. Include all the necessary information in a letter to your advisor, but keep it brief and professional. You don't owe them a lengthy explanation; a quick, clean break is in everyone's best interest.
You should be prepared for your advisor to try and talk you out of leaving. Do not feel compelled to engage in their retention pitch. Make it clear your decision is final and stick to the business at hand, the transfer of your assets, and all the necessary paperwork.
The Bottom Line
Breakups are never easy, and this holds true when it comes to saying goodbye to your financial advisor, too.
Situations involving the heart or the wallet can be very stressful and emotionally draining. It's essential to do your homework to make the break as clean and painless as possible.
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