Breaking up is hard, especially when it comes to finances. The decision to switch financial advisors should not be taken lightly, and the transition itself requires careful consideration to avoid costly mistakes.
Bart Mackler, a financial advisor with over 25 years of industry experience across various firms, has observed numerous clients navigate this challenging transition. With a background that spans from large Wall Street institutions to independent wealth management firms, Mackler has identified common pitfalls that can derail even the most well-intentioned advisor changes.
"The relationship between client and advisor is fundamentally built on trust, communication, and aligned goals," Mackler notes. "When considering a change, clients need to be deliberate about how they approach the transition process."
Based on discussions with industry veterans like Mackler and insights from financial research, here are five essential questions anyone should ask before signing those transfer forms.
1. What are my true reasons for wanting to switch advisors?
Clarifying motivations is crucial before making any change. Research from YCharts reveals that poor communication is the number one reason clients leave their advisors. According to their 2023 survey, three in four advised clients either switched or considered switching wealth advisors, with a remarkable 80% expressing a desire for more frequent contact.
Bart Mackler has seen this pattern repeatedly in his decades of financial service. "When I speak with new clients who have left other advisors, they almost always mention communication breakdowns as the root cause," he observes.
Industry studies consistently show that performance issues, while often cited as the primary reason for change, are frequently just symptoms of deeper problems. A 2023 report from AssetMark found that when clients are blindsided by disappointing results, the real issue isn't necessarily the numbers themselves but rather feeling uninformed about market conditions or strategy adjustments.
Before making any move, individuals should consider writing down specific grievances or unmet needs. Is it truly about investment returns? Or is it more about feeling neglected, misunderstood, or that priorities have shifted? For instance, if someone is approaching retirement and their advisor still treats them like they are in wealth accumulation mode, that misalignment is worth addressing.
2. What will it actually cost me to make this transition?
Financial transitions can come with significant expenses that many investors fail to anticipate. Investopedia advises calculating the total cost of transferring, including termination fees, transfer charges, and potential tax implications before making any moves.
When examining transfer costs, investors need to be particularly vigilant about certain investments. According to Approach Financial Planning, moving out of an annuity can trigger surrender charges that may exceed $12,000 in some cases. Similarly, mutual funds with 5-10 year holding periods might incur contingent deferred sales charges of 5% or more if sold before the term ends.
Even simpler transfers can come with unexpected fees. Farm Bureau Financial Services points out that account closing fees typically range from $50 to $125 per account, and annual IRA custodial fees might still be charged even when leaving early in the year. While these smaller charges won't significantly impact overall finances, they can be frustrating surprises during the transition.
Sometimes the wisest approach is to leave certain investments with the current advisor temporarily. "The right move is not always an all or nothing proposition," Mackler explains. "Proper transition planning might mean keeping some assets where they are until surrender periods expire."
3. How does this new advisor's investment philosophy align with my goals?
An investment philosophy serves as the foundation for all portfolio decisions and should directly connect to personal financial objectives. According to Investopedia, a proper investment philosophy addresses an investor's goals, timeline, risk tolerance, and individual capital needs rather than simply following market trends.
Vanguard emphasizes that successful investing requires discipline and balance, key components of a sound investment philosophy. Their research indicates that advisor-client alignment on investment approach is crucial for long-term success, especially during market volatility when emotional reactions can lead to poor decisions.
An article in The Investor's Podcast points out that without a well-defined philosophy aligning with personal beliefs, investors often bounce between investment fads, resulting in poor financial outcomes. A consistent investment approach serves as a financial compass, particularly during market turbulence.
The American College of Financial Services promotes goal-based investing, where investments are viewed not as numbers on a screen but as tools to achieve specific life objectives. This perspective transforms portfolio management from an abstract exercise into a concrete plan for funding various life goals, from retirement to education or legacy planning.
4. What is the full scope of services I'll receive for the fees I'm paying?
Fee structures alone don't tell the complete story about advisor value. Transitions Wealth Advisors notes that advisory fees typically range from 0.75% to 1.5% of assets under management, with decreasing percentages for larger portfolios, but these percentages reveal little about included services.
A comprehensive study by Dunham found that clients increasingly seek holistic advice, including estate planning, trust services, and philanthropic planning, yet many aren't receiving these services from their current advisors. This disconnect between expectations and delivered services ranks among the top reasons clients change advisors.
According to Approach Financial Planning, creating a service checklist before switching can be invaluable. Key questions to ask include: Will they provide retirement income planning? Tax minimization strategies? Estate planning coordination? Insurance analysis? Business succession planning? Understanding exactly what services are included helps prevent future disappointment.
Fidelity Wealth Management suggests documenting investment objectives and examining whether potential advisors can deliver customized strategies that align with personal priorities, whether those are growth, income generation, or asset protection. The value proposition should clearly articulate specific services, meeting frequency, and identify who will handle the account.
5. What is the advisor's professional background and are there any red flags I should know about?
Background verification has become essential when selecting financial advisors. FINRA's BrokerCheck is a free tool that gives investors access to professionals' employment history, certifications, licenses, and any violations within the past decade, helping investors make informed decisions about whom to trust with their finances.
According to the Investment Fraud Lawyers website, BrokerCheck allows investors to verify credentials and review disciplinary history, which can reveal problematic patterns that might not be apparent in an interview. The SEC's Investment Adviser Public Disclosure database provides similar information for advisors who aren't registered with FINRA.
Research from iProspectCheck indicates that financial firms are required to conduct thorough background checks on broker applicants, including education verification, professional license verification, and regulatory compliance checks. However, investors should still perform their own due diligence rather than relying solely on firms' verification processes.
Kiplinger advises investors to be wary if they cannot find a financial professional in either FINRA or SEC databases after triple-checking the information. This absence is a significant red flag and may indicate the person is using financial advisor titles without proper registration or oversight.
Advisor Transitions
Switching financial advisors is never a decision to take lightly. By asking these five essential questions that Bart Mackler has identified through years of experience, individuals will be better prepared to make a transition that truly serves their financial best interests.
A 2024 study by Wealth Solutions Report found that three in four advised clients considered changing or actually changed advisors in the previous year. With such high turnover rates, it's critical to approach advisor transitions systematically rather than emotionally.
"The final piece of advice I give clients looking to switch advisors is to trust their instincts," Mackler concludes. "If an advisor makes you feel heard, understood, and confident about your financial future, you're likely on the right track."
The financial advice landscape continues to evolve toward more transparency, client-focused service, and ethical standards, all positive developments for consumers seeking quality guidance.
