How to Fire a Financial Advisor and Move Your Money

Ending a relationship with a financial advisor is a manageable process that requires careful preparation. This guide provides a clear path for individuals to transition their financial accounts and conclude their advisory arrangement, ensuring a smooth termination and asset transfer.

Gathering Information Before You Act

Before initiating any communication regarding termination, gather all relevant financial information. Identify every account managed by your advisor, which may include brokerage accounts, Individual Retirement Accounts (IRAs), 401(k) rollovers, or trust accounts. Reviewing current statements for each account will provide a clear picture of their balances, holdings, and the specific types of investments within them.

Understanding your advisor’s compensation structure is also important, as this dictates how they have been paid for their services. Common fee arrangements include a percentage of assets under management (AUM), often around 1% annually for accounts up to $1 million, which may decrease for larger portfolios. Other structures involve hourly rates, typically ranging from $200 to $400, or flat fees for specific services or ongoing retainers, which can range from $1,000 to $7,500. Some advisors may also earn commissions from product sales.

Review your original advisory agreement or disclosure documents, such as Form ADV Part 2, for details on your advisor’s fee schedule and any potential termination fees. Form ADV Part 2 outlines the firm’s business practices, fees, conflicts of interest, and disciplinary history, with Item 5 detailing how the advisor charges clients.

Evaluate your portfolio’s performance against relevant benchmarks and your financial objectives. This review assesses how your investments have performed over time. Understanding where your assets are held and how they have performed under the advisor’s management is a key preparatory step.

Recognize the distinction between your financial advisor and the custodian of your assets. The custodian is the institution that holds your investments, such as a brokerage firm or bank. Your investments, like stocks and bonds, are typically held by this custodian, and safeguards such as Securities Investor Protection Corporation (SIPC) coverage protect accounts up to $500,000, including $250,000 for cash, if the broker-dealer fails. This protection does not cover losses due to market fluctuations or poor investment advice.

Consider where you intend to move your assets once the current relationship is terminated. This could involve consolidating accounts at a new advisory firm, transferring them to a self-managed brokerage account, or moving them to a different type of financial institution. Planning for the destination of your assets ensures an organized transition.

Notifying Your Advisor and Firm

Once you have gathered all necessary information and determined your next steps, formally notify your advisor and their firm. Clear, concise, and documented communication is paramount during this stage. While a phone call may initiate the conversation, always follow it with written confirmation.

A written letter or email serves as official notification and creates a record of your intent. This communication should state your decision to terminate the advisory relationship, ideally providing an effective date. It is not necessary to provide extensive explanations or engage in emotional language; a professional and direct tone is most appropriate.

Your notification should include specific instructions regarding the handling of your accounts, such as your preference for asset transfer or account closure. While the advisory firm may contact you to confirm your decision or offer alternatives, you are not obligated to reconsider. The firm may also send forms to complete the termination and transfer process.

Ensuring your notification has been received by the firm is an important follow-up. You may request an acknowledgment of receipt for your records. Firms are required to file a Form U5 with the Financial Industry Regulatory Authority (FINRA) when a registered representative leaves their employment. Firms are also responsible for notifying clients about an advisor’s departure and how their accounts will continue to be serviced.

Executing Asset Transfers and Account Closure

After formally notifying your advisor and their firm, the next phase involves moving your assets and ensuring account closure. This process often involves decisions about how your investments will be transferred. You can choose to transfer assets “in-kind,” meaning the actual securities (stocks, bonds, mutual funds) are moved to your new custodian without being sold. This approach typically avoids immediate capital gains taxes, provided the transfer is between the same type of accounts.

Alternatively, you may choose to liquidate your holdings, converting them to cash before transferring the funds. This option might be simpler but could trigger capital gains taxes if investments have appreciated. The choice between in-kind and liquidation depends on your tax situation and investment strategy for the new account.

For retirement accounts, such as IRAs or 401(k)s, understanding the difference between direct and indirect rollovers is important to avoid tax implications. A direct rollover involves funds moving directly from your old plan administrator to your new custodian, often via a check payable to the new institution. This method avoids mandatory federal tax withholding, typically 20%, and is not a taxable event. An indirect rollover, where funds are paid to you directly, requires you to redeposit the full amount into a new retirement account within 60 days to avoid the distribution being considered taxable income and potentially incurring penalties.

The new custodian or receiving institution will typically provide the necessary transfer forms. These forms authorize the movement of assets from your former firm. Completing these forms accurately, using the information you gathered earlier, is critical for a smooth transfer. Electronic transfers can often be completed within approximately five business days, while transfers requiring physical mail may take two to four weeks. Some transfers may take up to 10 business days for the initial movement.

Monitor the progress of your asset transfers to confirm their arrival at the new destination. Once assets are confirmed in your new account, verify that all accounts with your former firm are closed and that no remaining assets or liabilities exist. This final confirmation ensures a complete break from the previous advisory relationship.

Final Financial Reconciliation

Concluding the financial advisory relationship extends beyond asset transfers to include a final financial reconciliation. This step ensures all outstanding financial obligations are settled and necessary tax documentation is in order.

Advisory fees are often prorated for the portion of the billing period services were provided up to the termination date. Verify these calculations against your advisory agreement to ensure accuracy. Any outstanding balances or credits, such as unearned fees, should be addressed and resolved.

You will need to receive final tax documents from the former custodian or firm. These documents include forms like 1099-B for proceeds from brokerage transactions, 1099-DIV for dividends, and 1099-INT for interest income. These statements are necessary for accurate tax filing for the year of the transition.

Retaining all final statements, transfer confirmations, and communication records is a prudent practice. This documentation provides a comprehensive paper trail of the termination process, which can be useful for future reference, tax purposes, or in the unlikely event of any disputes. Maintaining these records supports your financial history and provides clarity on the conclusion of the advisory relationship.