How to Properly Fire Your Financial Advisor

Changing financial advisors is a significant financial decision, and understanding the process helps ensure a smooth transition. This guide outlines the steps for ending a relationship with a financial advisor, focusing on preparation, execution, and confirmation of asset transfers. Navigating this change requires attention to detail to protect your financial interests and ensure continuity in managing your investments.

Preparing for the Advisor Change

Before initiating any formal steps to change financial advisors, gather and review specific documents and information. Locate client agreements, like the investment advisory agreement. These outline terms, fee schedules, services, and termination clauses, including notice periods or early termination fees. Understanding these obligations helps anticipate costs or procedural requirements.

Identify all accounts managed by your advisor, including brokerage accounts, individual retirement accounts (IRAs), 401(k) plans, trust accounts, and college savings plans. Collect recent account statements, performance reports, and tax documents like Form 1099s. These records provide a comprehensive picture of your current holdings, cost basis, and historical performance, valuable for your own records and for your new advisor.

Review your current asset allocation and specific investments. Some investments may carry charges triggered upon transfer or liquidation. For example, certain mutual funds or annuities may have contingent deferred sales charges (CDSC) or surrender charges if sold within a specified period. Understanding these potential costs helps you decide whether to transfer investments in-kind or liquidate them.

Executing the Advisor Transition

After preparation, formally end the relationship with your current advisor and initiate asset transfers. While your new financial advisor can assist, it is your responsibility to notify the old firm in writing. Adhere to any notice period specified in your advisory agreement, which could be 30 days or more.

For brokerage accounts, the Automated Customer Account Transfer Service (ACATS) is commonly used. This electronic system automates the transfer of eligible securities and cash. The new financial institution initiates the ACATS transfer by submitting a Transfer Information (TI) record, and the delivering firm has a short period to respond. Most ACATS transfers are completed within 5-7 business days.

For retirement accounts like 401(k)s or IRAs, a direct rollover is the most tax-efficient method to move funds. Funds are transferred directly from your old plan administrator or custodian to the new one, either by check or wire transfer. This maintains the tax-deferred status of your retirement savings and avoids potential tax withholdings or early withdrawal penalties. If the old advisor holds physical documents or assets, arrange for their secure return or transfer.

Confirming Account Transfers and Documentation

After initiating asset transfers, verify their successful completion. Confirm all assets have been accurately transferred to your new accounts. Review new firm statements to ensure expected securities and cash balances appear correctly. Check cost basis information for transferred investments, crucial for accurate tax reporting.

Obtain and review final statements from your former financial advisor. These should reflect that all accounts are closed or transferred assets removed. Ensure you receive all necessary final tax documents, such as Forms 1099-INT, 1099-DIV, and 1099-B, from the old firm for the period they managed your assets.

Maintain comprehensive records of the entire transition process. Keep copies of all correspondence, including termination notices, transfer initiation forms, and confirmations of asset receipt. Retain all account statements, trade confirmations, and tax documents from both firms.

In the event of discrepancies or issues during or after the transfer, such as missing funds or incorrect transfers, promptly contact your new financial firm for assistance.