Today I’m going to share how to fire your financial advisor.
In fact, the process is easier than you might think!
So if you want to learn exactly how to fire your advisor (and what mistakes to avoid), this article is for you.[TOC]
5 Questions You Must Ask Your Financial Advisor
Most financial advisors operate under the suitability rule. These financial professionals have the ability to take their fiduciary hat on and off.
One day they are charging you a transparent fee and the next they are selling you a non-traded REIT in return for a 10% commission.
It’s important to confirm that your financial advisor adheres to the Fiduciary Rule 100% of the time.
Unfortunately, not everyone knows how to question their financial advisor – or even fire their advisor if they don’t like what they hear.
During a recent conversation with a colleague, I learned that some of her close friends received push-back when questioning their advisors on the Fiduciary Rule and how they were compensated.
Unfortunately, a lot of supposed “financial advisors” are just salespeople who are good at turning the tables on anyone who dares to ask questions.
She was the catalyst for this blog post and the following is my response:
“Regardless of how much your advisor pushes back, there are some questions that truly deserve answers. If your financial advisor cannot or will not answer these questions, you should walk – no, run – out the door as quickly as you can.”
Questions you should always ask your financial advisor include:
- How are you compensated?
- Do you ever accept compensation in the form of commissions (i.e., life insurance, annuities, mutual funds)?
- How much am I paying in annual fees for 1) your services and 2) the cost of the underlying investment products?
- Are you a fiduciary 100% of the time?
- Are you a CFP® Professional (CERTIFIED FINANCIAL PLANNER™ Professional)?
Maybe you feel like this process deserves more than five questions. If so, here’s an eight-page questionnaire provided by the Financial Planning Association.
Or, maybe asking these questions feels like a waste of time and you want to get right to the point.
If so, consider asking them to sign a letter expressing their commitment to being a fiduciary 100% of the time. Here is an example:
Ideally, you’ll want to work with a fee-only financial advisor who is paid for giving advice – not for selling financial products.
You’ll also want to work with a financial advisor who is a fiduciary 100% of the time and who has gone the extra mile to become a CERTIFIED FINANCIAL PLANNER™ Professional.
If your financial advisor hesitates to answer any of these questions, gets agitated, or gives answers you don’t appreciate, this is a huge red flag.
No matter what, your financial advisor should feel totally comfortable explaining the fees they charge and the services they deliver in return. If they don’t, they probably have something to hide.
How to Fire Your Financial Advisor: A 3-Step Process
If your financial advisor ducks the questions listed above, you have two choices.
You can either a) continue working with someone who may not have your best interests in mind, or b) search for a new financial advisor who is legally required to put your interests above their own.
If firing your financial advisor is on your agenda, here are the steps you should take next:
Step #1: Interview at least three new financial advisors.
Before you fire your financial advisor, you should find a new professional to replace them.
As mentioned already, you should look for a financial advisor who has the CFP® designation and is a fiduciary 100% of the time.
Consider the following resources to help you find a financial planner in your area that meets those requirements:
Also, make sure you hire a fee-only financial advisor who is paid for advice and not sales volume. This will ensure you’re not being scammed into buying inferior investment products that pay a broker huge commissions.
And remember, fee-only and fee-based are NOT the same!
Step #2: Let your old financial advisor know you’re moving on.
If you feel comfortable doing so, it’s always best to let your old financial advisor know you’ve decided to work with someone else. They’ll find out anyway if and when you transfer your investment accounts to the new institution, so they might as well find out from you.
You can simply thank them for their time and effort over the years and give them the old “it’s not you, it’s me” line.
More often than not, your old financial advisor will treat you kindly and respect your decision. Your exit may even provide them with valuable feedback they can use to improve their business practices going forward.
On rare occasion, you will get the financial advisor who becomes defensive and/or tries to convince you to stay. This type of response will likely validate your decision to move.
Step #3: Let your new financial advisor handle the transition.
If you don’t feel comfortable letting your financial advisor know they’re fired, you will be glad to know that the new financial advisor can deliver the bad news for you. In fact, they can do this without even contacting the previous advisor.
Your new financial advisor will request recent copies of investment account statements, have you sign an account transfer form, and submit to his/her back-office to process.
The old financial advisor and their firm will receive the request and begin transferring your accounts to your new fee-only, CERTIFIED FINANCIAL PLANNER™ Professional who adheres to the Fiduciary Standard 100% of the time.
Whether the new Fiduciary Rule takes hold or not, I can only hope that consumers are paying attention.
Before now, consumers may have assumed their financial advisor was giving them only honest advice.
But now that they understand not all financial advisors are fiduciaries, they can ask questions and get some much-needed answers.
While the right financial advisor can leave you a lot better off, the wrong financial advisor can give you questionable advice and cost much more than he or she is worth.
At the moment, it’s up to you to figure out where your financial advisor stands.
Hey there! I’m the founder of Define Financial, a commission-free retirement planning firm ranked #2 in the U.S. by Investopedia. We specialize in helping people over age 50 reduce their tax bill, invest smarter, and make work optional in retirement. I’m also the host of the Stay Wealthy Retirement Show, a Forbes Top 10 podcast. When I’m not helping retirement savers reduce their taxes, you can find me traveling with my family, searching for the next best carne asada burrito, or trying to master Adam Scott’s golf swing.