Is Your Financial Advisor Switching Firms? Evaluate Your Options

Just like so many other professionals, financial advisors often move on to new employers for various reasons. Perhaps they were offered a higher salary, given more opportunity for career advancement, or crave the chance to offer more relevant products and services to their clients.

For clients, meanwhile, it may come as a surprise (or even a shock!) to learn their financial advisor is moving on to greener pastures. This change can also prompt confusion if and when clients receive correspondence from the new firm requesting they move assets to maintain the relationship—just as the existing firm reaches out with the name of a new advisor—as well as murkiness surrounding how the new firm will benefit them and their accounts.

If you find yourself in this frustrating situation and despite all of this upheaval, the good news is that you have a choice: you can follow your financial advisor to his or her new firm or end the relationship and seek out a new one. This post will help you better evaluate your options in this regard.

Questions to ask if your financial advisor switches firms

For starters, you’ll need to glean a few key insights including the reason he or she departed. While you’ll likely receive a quick response about how the new firm will provide better opportunities for you—which may very well be true—be sure to follow up by requesting specific examples of the same.

You’ll also need to dig a little deeper to confirm your advisor didn’t leave his or her previous firm due to disciplinary reasons. If this is in fact the case, you might want to learn more about what exactly transpired or even reconsider the relationship altogether. BrokerCheck—a tool provided by FINRA, a regulatory agency for advisors who work with investment transactions—and the U.S. Securities and Exchange Commission (SEC) website both offer the means to search financial advisors to learn if they were involved in any disciplinary action.

Provided you’re good to go in that regard, be sure to ask if you can transfer all your holdings to the new firm—as some products (e.g., mutual funds and annuities) sometimes aren’t transferrable. Consequently and should you decide to move assets from the advisor’s previous firm, you may need to liquidate non-transferrable assets: potentially triggering transaction costs, fees, and taxes. Be sure your financial advisor is clear on potential implications for each scenario, accordingly.

Finally, inquire about fees; ask if the new firm has a different pricing structure than his or her previous one, and if so, how this will impact your account.

How to evaluate the new firm

While your financial advisor’s new firm may in fact be an excellent option for your situation, do a little homework so you aren’t inadvertently blindsided by buyer’s remorse. Key considerations in this case include…

Receiving advice vs. being sold to

One of the most important acronyms to familiarize yourself with is “RIA.” A Registered Investment Advisor is a firm or person who offers investment advice and is licensed by the SEC or a similar state office. More importantly, RIAs are fiduciaries—meaning they are legally required to put your interests above their own at all times during the relationship.

All other purported “financial advisors” are actually salespeople who fall within the broker-dealer category. Because brokers need only act in your best interest (BI) at the time of initial recommendations, they follow a less rigorous “best interest” standard of care that falls short of the full fiduciary standards RIAs are held to. Regulation BI also allows for commission-based compensation from employers or third parties, whereas RIAs are not paid in this manner.

If you want to feel confident you’re paying for the advice and services you want and need—rather than merely being sold products that score your financial advisor high commissions—moving to an RIA firm is your best bet and speaks to the importance of learning which standard the new firm is held to.

Disclosures

After you nail down the type of firm your advisor is moving to, you can research its disclosures and receive a free copy of the RIA Form ADV from the Securities and Exchange Commission. All RIA firms must file this form with the SEC or applicable state jurisdiction and list their services, fees, and detailed background (with FINRA’s aforementioned BrokerCheck tool providing similar background information for broker-dealer firms).

Have a few goals in mind while reading firm disclosures, seeking to understand its business model to help identify potential conflicts of interest (e.g., if the company sells proprietary products or services).

Regardless of fee structure (fee-based, commission-based, subscription, etc.), it’s also important to understand what exactly you’re paying for and make sure no disciplinary action was ever levied against the firm (if so, it’s perhaps best to move on).

Finally, pay attention to whom the firm employs as a client asset custodian to hold your investments and safeguard them from being stolen or lost; a well-known independent third party in a transparent relationship should ideally occupy this role.

Other considerations

Final food for thought arises with respect to your advisor’s credentials, as these are by no means the same and do in fact matter. If your current financial advisor has a CFP® designation, you’re in good shape. Why? It’s the most widely recognized designation for a financial advisor.

Regulated by the Certified Financial Planner Board of Standards, CFP®s must pass a difficult exam and meet strict standards with respect to education and work experience. Better yet, they’re akin to RIAs in that they’re also held to a fiduciary standard. You can verify your advisor’s designation by searching the CFP® Board’s online database (add a first and last name before applying any filters).

Having said that, it’s a good idea to inquire if other CFP®s are employed at the new firm—so if your relationship with your current financial advisor abruptly ends, you know you’ll remain in good hands.

You’ll also want to familiarize yourself with a few other distinguished designations you’ll likely come across while performing your research, knowing what these are and how they differ from a CFP® (click here to explore professional designations).

A Chartered Financial Consultant (ChFC), for example, is a designation that follows the same educational curriculum with additional electives but is less stringent than a CFP® because it does not require an exam. ChFCs are not held to a fiduciary standard. Also not held to this standard are Chartered Retirement Planning Counselors (CRPCs), who specialize in retirement planning whereas CFP®s provide financial guidance across all aspects of an individual’s life.

In sum: what to do if your financial advisor switches firms

Don’t panic! Not only is it not uncommon for financial advisors to switch firms, but you’re now equipped with some sound advice about whether to follow your advisor or end the relationship if this happens to you. Still have questions and need an objective opinion? Click here to schedule a no-obligation meeting with one of our CFP® professionals.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.