This content is provided for general informational purposes only, and is not intended to constitute investment advice or any other kind of professional advice. Before taking action based on such information, we encourage you to consult with appropriate professionals. We do not endorse any third parties referenced within the aforementioned article. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. In addition, past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.

How to change financial advisors: Smart choices pay off

Learn how to change financial advisors smoothly while minimizing fees. Find out the reasons, steps, costs, and tax implications worth knowing.



April 19, 2024

6 min read

What's Playbook? We're your friendly step-by-step app for growing your money and minimizing taxes so you can live the life you want, sooner. Learn more

Key takeaways
  • It might be time to hire a new advisor if you're not meeting your goals, not communicating openly, or have new financial objectives to address.
  • Always review your current contract and note any fees, penalties, or restrictions.
  • You can end your relationship with your current advisor, or let your new advisor handle it.

In this article

      Breakups suck. Whether it’s your favorite boy band, your significant other, or the financial advisor you entrusted your money with, cutting ties can be stressful.

      But it doesn’t have to be — at least not with your advisor. There are many reasons why you may want or need to find a new investment team. In this post, we’ll walk you through some of the most common financial advisor red flags and highlight the potential costs and tax implications.

      We’ll also explore some simple guidelines for how to change financial advisors. And if the thought of having to write a “Dear John” letter to your current financial guidance counselor is making your palms sweaty, we have a remedy for that below, too.

      How to fire your financial advisor (like a boss) 

      You can take control of your financial future and kick your advisor to the curb with these five steps.

      Five steps to break up with your advisor, beginning with looking over your contract and ending with updating your advisor.

      1. Review your current contract and portfolio

      Before making any moves, you’ll need a clear understanding of your current financial relationship. Review your existing contract with your financial advisor and take a close look at your investment portfolio. Take note of any fees, penalties, or restrictions that might apply if you decide to make changes.

      2. Interview new advisors

      Next, start looking for a financial advisor or an advisory platforms that aligns with your current goals and values. Ask people you know and respect for recommendations.

      Schedule interviews with potential advisors to discuss your financial situation, goals, and expectations. Don't hesitate to ask questions about their investment strategies, fees, and past performance. You should feel comfortable and confident with your new advisor, as they’ll play a significant role in your financial future.

      Keep in mind that advisors take many forms and aren't just the traditional single person looking over your finances anymore. Technology-enabled advisory platforms can often cost less, give you more visibility into your finances, and still give you the option to speak to a real person if you want to.

      3. Gather your transaction records

      Organize all your financial transaction records, including statements, tax documents, and any contracts related to your investments. Your current advisor should have all of these on record, as well as documentation of your written communication. Although they may have no idea you’re about to break up with them, the advisor has a fiduciary duty to provide these documents. Don’t be shy about asking for them.

      Having these documents readily available will make the transition smoother and ensure your new advisor has a complete picture of your financial history.

      4. Clarify possible fees and penalties with your new advisor

      Once you've selected a new advisor, work closely with them to understand any potential fees or penalties associated with transferring your investments. Your new advisor will guide you through the process and help minimize any financial impacts of the transition.

      5. Break up with your previous advisor (or have your new one handle it) 

      The time has come. It's time to tell your previous advisor the relationship is over. You can handle this conversation yourself (perhaps the old classic “It’s not you, it’s me”), but many new advisors are well-versed in helping their new clients with this process. 

      If this is one breakup conversation you’d prefer to avoid, let them handle the communication on your behalf to ensure a pain-free, respectful, and smooth transition.

      Or, if you do want to deliver the news yourself, use this email template we put together as a jumping-off point:

      Hello [Advisor's Name],

      I have appreciated your help and guidance in managing my financial portfolio, but I’ve decided to move my accounts to a different advisor at this time. This change will take effect on [End date].

      [Name of New Advisor] will be in touch with you directly to handle the transfer of assets.

      Please acknowledge receipt of this email.

      Thank you for your services and assistance.

      Best regards,

      [Your Name]

      5 warning signs of a bad financial advisor

      How do you know it’s time to part ways? You’re not the only one wondering if the grass is greener in another financial advisor’s portfolio – it happens more often than you might think. 

      Red flags your advisor isn't working out include performance issues, lack of communication, sus behavior, price, and poor fit for your needs.

      One NASDAQ study revealed that, since the start of the pandemic, 47% of investors have at least considered switching to a new financial advisor. And 21.8% of them actually did it. Here are some of the most common reasons people make the change.

      Poor relative performance 

      A capable advisor should have a track record of making informed investment decisions that align with your objectives. Pay attention to evidence of consistent advice that doesn’t deliver positive results against relevant benchmarks.

      It’s time to take action if your investments fail to meet the financial goals you set with your advisor or consistently underperform the market. For reference, the S&P 500’s average annual market performance returns about 10%.

      Don't hesitate to evaluate your advisor's performance regularly. If doubts arise, consider seeking a second opinion before making a permanent switch.

      Lack of communication

      When your advisor rarely reaches out, doesn't return your calls promptly, or doesn’t keep you informed about your financial matters, it's a sign that this isn’t a good fit. You should feel comfortable discussing your financial concerns and asking clarifying questions. If the communication is lacking, your advisor might not have your best interests at heart.

      If it’s important to you to have a live view of how your finances are performing, a financial planning or investment app might be a good option to consider.

      Trust issues

      Trust is the foundation of any financial advisory relationship. It's a major red flag if you’re questioning your advisor's integrity or suspecting hidden agendas. You should always feel that your advisor is acting in your best interest, with transparency and honesty. If they’re acting sus, consider giving the snake oil salesman the old heave-ho.

      High fees 

      Excessive fees can seriously hurt your investment returns over time. Most advisors operate under an assets under management (AUM) model, where they charge an annual percentage of the money they manage for you. A 2021 study from Advisory HQ showed that typical AUM rates range from about 0.5% to 1.2%, depending on the total amount of your investments. The smaller your investment, the higher your AUM fees.

      Over your lifetime, AUM fees can add up. Plus, it incentivizes advisors to keep your money invested with them instead of helping you buy a home or pay off debts. An advisory platform that offers a flat annual fee is one way to avoid AUM fees.

      If you notice that your advisor's fees are eating into your profits, address it. A good advisor should be clear and upfront about their fee structure and work with you to minimize costs while maximizing returns.

      Misaligned expertise

      Not all financial advisors are experts in every aspect of wealth management. If you have specialized financial needs, like tax optimization or estate planning, and your advisor has no experience with them, they may not be the right person for you. It’s better to work with an advisor whose skills align with your unique financial situation and goals.

      Potential costs and tax implications

      Changing financial advisors is a major decision that can have expensive financial implications. If you choose to make that change, consider these costs as you navigate the transition:

      • Account Fees: When switching advisors, you may encounter various fees, like account transfer fees or account closure fees from your previous advisor. Ensure you understand these costs before proceeding. Your new advisor should be transparent about any fees you’ll owe when opening new accounts with them.
      • Capital Gains Taxes: If you hold investments that have appreciated in value with your current advisor, selling them as part of the transition could trigger capital gains taxes. Your new advisor can help you strategize ways to minimize these tax implications, like staggering the sale of assets over time, tax-free investments, offsetting gains with any investment losses, or transferring the assets rather than selling them off. 

      You should also collaborate closely with your new advisor to ensure a tax-efficient transfer of your assets. By employing strategies like in-kind transfers, you may be able to move your investments without triggering immediate tax consequences.

      Tips for minimizing taxes and fees

      Lessening the impact of taxes and fees during a financial advisor switch is essential to protect your wealth. Here are some suggestions to help you manage these speedbumps:

      • Plan Strategically: Work with your new advisor to create a comprehensive transition plan that considers tax-efficient asset transfers and minimizes unnecessary fees.
      • Coordinate with Tax Pros: Enlist tax professionals who can provide guidance on managing capital gains and other tax considerations of the move.
      • Understand Fees: Carefully read and understand your new advisor’s fee structures. Look for advisors who minimize unnecessary costs and offer fee arrangements that work with your long-term financial goals.
      • Review Investment Strategies: Review your overall investment strategies. Make sure your new advisor's approach is tax-efficient and tailored to your financial objectives.
      • Keep Detailed Records: Keep records of all transactions and communications related to the transition. These records can be essential for tax reporting and ensuring a smooth process.

      The Playbook take

      If any of the red flags we outlined above resonate with your current advisory relationship, it may be time to put these tips about how to change financial advisors to use. Explore your options and look for an advisor who better meets your needs and priorities. Your financial future deserves nothing less.

      No items found.
      About the author

      Phil Wettersten, Series 7 & 66

      Head of Product Success

      Phil holds both Series 66 and Series 7 credentials and previously served as an Investment Consultant at TD Ameritrade. At Playbook, he's the authoritative voice representing our customers, spearheading product enhancements and strategic planning. Phil's unwavering dedication keeps us ahead in delivering top-notch user experiences.

      Theo Katsoulis, CFA

      Head of Investments

      Theo brings an extensive background in Institutional Asset Management. With a B.A. from Villanova University's School of Business, and having passed the rigorous Series 65 and CFA examinations, he brings significant expertise from portfolio management to understanding intricate financial infrastructures. As Head of Investments at Playbook, he ensures consumers receive exceptional diligence and care for their investment portfolios.

      Get an airtight financial plan
      in minutes.
      Playbook is a step-by-step app for growing your money and minimizing taxes so you can live the life you want, sooner.

      Save your cents from Uncle Sam

      Grow your wealth with a personalized financial plan and tax-advantaged investments.

      Start saving today

      Save your cents from Uncle Sam

      Grow your wealth with a personalized financial plan and tax-advantaged investments.

      Start saving today

      Save your cents from Uncle Sam

      Grow your wealth with a personalized financial plan and tax-advantaged investments.

      Start saving today

      In this article