How to Know When to Switch Financial Advisors

With the recent ups and downs in the stock market, many people have taken a good hard look not only at their investments, but also at their investment advisors. Back in the bull market 1990’s, it was hard not to make money in just about any investment available. Now, however, it takes a competent advisor to really pick the right investment vehicles for your specific goals and circumstances.

If Things Have Changed, Then It Might Be Time to Move On

In most instances, financial advisors must perform a great deal of marketing in order to obtain clients. But just because your advisor is a good marketer does not necessarily make him or her a good advisor for your finances.

There are some red flags you should look out for once you’ve handed over your savings to a financial advisor. And, if you see any of these warning signs, you might want to consider transferring your account to someone who can better serve your financial needs.

8 Good Reasons to Move On

Any of the following can give good reason for you to move your money elsewhere. Unlike an unacceptable relationship with your barber or tailor, having a poor fit with your financial advisor can literally mean the difference between retiring or having to work for several more years. Therefore, it’s imperative to make sure your advisor’s goals for your portfolio are in line with yours.

  • Your Advisor Doesn’t Contact You Regularly. If your financial advisor has disappeared into thin air, this could mean a problem with your investment recommendations (i.e., they fear calling you based on their poor advice), or they are simply too busy to call you. Either way, lack of contact with you is not a good way to serve you and your investment needs. Most financial advisors should contact their clients once per month, even if it’s just to “check in.” At the very least, you should be contacted once per quarter. Anything less should be grounds for moving your account to someone who will keep you informed.
  • Your Life Circumstances Have Changed. Sometimes financial advisors specialize in different types of clients or accounts. For example, some focus primarily on working with younger investors. Therefore, if you opened your account years ago, but now need to focus on estate planning, it may be time to consider changing to an advisor who specializes in this area.
  • Your Portfolio is Not Keeping Pace with Inflation. If you compare your investment returns to other similar vehicles, and your account is way behind, this may signal that your advisor isn’t paying enough attention to your account. If this is the case, consider moving your nest egg to someone who will maintain a focus on your investment returns, and who will make necessary changes if need be.
  • Your Advisor Sells You Products that Make Him or Her More Money Than You. If you notice your advisor seems to continuously gravitate to particular products – even though they may not suit your needs – there could be a reason. Often, financial services companies offer “contests” or “spiffs” for their brokers and reward them when they sell a particular product to clients. If your advisor is more concerned with their bonus than about your account, consider a change immediately.
  • Your Advisor Doesn’t Explain the Investments They Are Recommending. When advisors truly understand the products they sell, they will be able to explain them to you. If your advisor does not go over their recommendations and how they can benefit you, this could signal that they don’t understand what they are selling. This, then, may not be the best person to be handling your retirement assets.
  • Your Investments are Too Risky for Your Tolerance. As a younger investor, you are better able to handle more risk in your investments. However, if you are approaching retirement, your risk tolerance will likely change to less aggressive investment vehicles. If your advisor continues to place you in risky products, you stand a greater chance of losing those dollars. If this is the case, you should consider moving your funds to someone who will take less risk with your money.
  • Investments in Your Account are Being Bought and Sold Without Your Knowledge or Permission. It should go without saying that if your advisor is trading in your account without your permission – and even more so, without your knowledge – move your account immediately. Not only is this dangerous to your funds, but it is unethical.
  • Your Advisor Knows Too Much About Your Financial Situation. This may sound strange, but there are situations where your advisor may actually know too much. If your financial advisor is your cousin, a neighbor, or a good friend, a dip in your account value may strain the relationship. In this case, it may be a good idea to move your account to someone who will concentrate on your investments, without making it uncomfortable in personal situations.

How to Make the Switch

Prior to moving your account – and risking the same problems all over again – you should research and interview your potential new financial advisor. If you don’t get a good feeling about them, move on. However, if the new advisor fits your needs, then transferring your account is not as difficult as it may at first seem.

In most cases, your new advisor will take care of all of the transfer details, including contacting your former investment company, monitoring the transfer process, keeping you informed along the way, and re-investing the funds according to your wishes.

Al Ramsay has been an avid dividend investor and personal finance contributor for 4 years. His weekly articles are published in the dividend stocks blog that covers high yield stocks and income investments.






2 responses to “How to Know When to Switch Financial Advisors”

  1. Kelly

    You should check your financial advisor’s savings and assets. See where he/she lives. Is it mortgaged? Do they own their car or lease it? Do they have a portfolio of retirement savings themselves? How are THEY doing on their own goals? If they won’t share this basic information about themselves, maybe you should move on. Ask them how they make money from you as a customer. Ask them precisely, not a general answer. Do they earn a percentage of your earnings? Do they get a commission on specific funds you purchase?

  2. I really like the point about how much your advisor makes from referals. This will determine who “your” advisor really works for.