Is Your Financial Advisor Switching Firms? Evaluate Your Options

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

For clients, it may come as a surprise (or even a shock!) to learn their financial advisor is leaving their firm. This change is sometimes also confusing if you receive correspondence from his or her new firm requesting that you move assets to continue the relationship—while your existing firm reaches out to share the news of your assignment to another advisor. Perhaps you’re also unclear on how your financial advisor’s new firm will benefit you and your accounts.

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 your financial advisor when he or she switches firms

For starters, you’ll need to gather a few insights from your financial advisor. For example, ask why he or she left. You’ll likely receive a quick response about how the new firm will provide better opportunities for you. While this may be true in many cases, follow up by asking your advisor to provide specific examples.

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 find out more or even reconsider your relationship.

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 allow you to search financial advisors and learn if they were involved in any disciplinary actions.

Provided that 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 such as mutual funds and annuities are sometimes not transferrable. Consequently, should you decide to move assets from the financial advisor’s previous firm, you may need to liquidate non-transferrable assets: which can result in transactions costs, fees, and taxes. Make certain your financial advisor is clear on the potential implications for each scenario, accordingly.

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

How to evaluate the new firm

Your financial advisor’s new firm may in fact be an excellent option for your situation. However, do a little homework so you don’t get hit with buyer’s remorse.

Receiving advice vs. being sold to
One of the most important acronyms to familiarize yourself with is “RIA,” which stands for “Registered Investment Advisor.” This 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 they need only act in your best interest (BI) at the time of initial recommendations, brokers 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 on commission.

If you want to feel confident that 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. It’s therefore important to learn which standard the new firm is held to.

Disclosures
Once you determine the type of firm your advisor is moving to, you can research the firm’s disclosures. For RIAs, you can receive a free copy of their Form ADV from the Securities and Exchange Commission. All firms must file this form with the SEC or applicable state jurisdiction and list their services, fees, and detailed background. FINRA’s BrokerCheck tool can provide you with similar background information for broker-dealer firms.

You should have a few goals in mind while reading firm disclosures, including understanding the firm’s business model to help you identify potential conflicts of interest. For example, does the company sell proprietary products or services?

Also, regardless of their fee structure (fee-based, commission-based, subscription, etc.), it’s important to understand what exactly you are paying for. In addition, check to see if any disciplinary action was ever levied against them (if so, it’s perhaps best to move on).

Finally, pay attention to whom the firm employs as a custodian for client assets. Ideally, a well-known, independent third party with a transparent relationship should maintain these.

Other considerations when making a decision

Final food for thought arises in regard to your advisor’s credentials, as all credentials are not the same and do in fact matter. If your current financial advisor has a CFP® designation, you’re in good shape. Why? Because this is 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, CFP®s are like 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.

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

During your research, you may come across a few other distinguished designations. You should know both these and how they differ from a CFP® professional (click here to explore professional designations).

A Chartered Financial Consultant (ChFC) 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.

Meanwhile, a Chartered Retirement Planning Counselor (CRPC) specializes in retirement planning whereas a CFP® provides financial guidance across all aspects of an individual’s life—including retirement planning. CRPCs are also not held to a fiduciary standard.

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

It’s not uncommon for a financial advisor to switch firms. Hopefully after reading this post, you’re now equipped with sound advice about whether to follow him or her or end the relationship. However, if you have additional 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.