Switching Financial Advisors

hand writing "time for change"It would be great if everyone bonded with and trusted the first financial advisor they met and were able to continue working with him or her for the rest of their life, but unfortunately, this isn’t always the case. In fact, according to a recent study, nearly 60 percent of investors have switched financial advisors during their lifetime. 

Deciding to switch financial advisors is a big decision, but it’s also important to remember you are not wedded to your financial advisor if you’re not happy. Everyone deserves a financial advisor they feel comfortable with and can trust to provide the guidance needed to reach their financial goals. Finding the right financial advisor can take time, but a little extra time in the beginning can save you a lot of time and money in the long-run.

Are you ready for a second opinion? The team at Heritage Capital has created this guide to help you determine if you’re working with the wrong financial advisor, and make a switch if you are. If you’re ready to discuss your situation with the Heritage Capital team, there’s no need to wait. Start a conversation.

Chapter 1

Red Flags You’re Working with the Wrong Financial Advisor

If you’re wondering if you’re with the wrong financial advisor, you probably are. Here are some red flags:

You feel pressured into investments or products. If your financial advisor is constantly pushing you to buy investments or products you don’t fully understand, that’s a big red flag. Any financial advisor who tells you that you “must act fast” is likely looking out for his or her own interest (i.e. commissions or quota) and not yours. Saving for retirement is a marathon, not a sprint. While you shouldn’t delay getting started, you also shouldn’t rush into any commitments, especially those you don’t understand. If the investment is high-quality today, it should be as good or better next week, next month and next year. Don’t ever rush. 

You haven’t heard from your financial advisor. If you’re having difficulty connecting with your financial advisor, that’s not a good sign – especially if your financial advisor is not returning your calls or emails. At Heritage Capital, we believe the client-advisor relationship should be a two-way street. While you should feel comfortable reaching out yourself (and that you’ll get a quick response in return), you should also expect to get regular outreach from your financial advisor, especially in uncertain times. 

You were promised returns and offered guarantees. In general, nothing about investing is guaranteed, especially not financial market returns. Whenever a financial advisor “guarantees” something, there’s usually a catch. As they say, “the devil is in the details” and investors rarely read the fine print.

Your financial advisor works on commission. Commissions are payments received for selling specific products. When a financial advisor earns commissions, there is an obvious conflict of interest. Will your financial advisor recommend a strategy or a specific product because of an attractive commission or because it’s the best investment for you? To remove even the perception of a conflict of interest, Heritage Capital works on a fee-only basis, meaning there are no commissions of any kind. For more on what this looks like, click here.

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Chapter 2

How to Choose the Right Financial Advisor

Now that you’re aware of what to look out for, it’s equally important to know what you should be looking for. Here are a few key characteristics: 

Fee-only. When a financial advisor earns commissions, there is an obvious conflict of interest. When a financial advisor is paid through fees only, like those at Heritage Capital, he or she earns either a flat fee, an hourly fee, or a fee based on Assets Under Management (AUM). Since fee-only advisors do not earn commissions, they have no incentive to put clients in one product over another unless that product is a better fit.

Independent. Financial advisors can work for larger firms or be independent. Much like financial advisors who earn commissions, advisors who work for larger firms are often pressured to sell their firm’s products. Independent advisors, on the other hand, are not wed to any firm’s proprietary products. Heritage Capital is a completely independent firm, so we can give advice that is truly unbiased and based on an individual’s situation.

Experienced. Financial advisors can specialize in any number of client types and situations. For instance, some advisors focus on retirement planning only, while others work primarily with business owners. If you’re nearing retirement in Connecticut, it doesn’t make sense to work with a financial advisor who specializes in helping young adults just starting their careers. Make sure the financial advisor you choose to work with is someone who has experience or specializes in your situation and/or financial goals.

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Chapter 3

Changes That May Trigger a Switch

Sometimes a financial advisor can start out as the right advisor for you, but then a change in your situation makes it a less perfect match. A lot changes throughout our financial lives. Just as you change from a pediatrician who works with children to a physician who specializes in adult medicine, there is nothing wrong with changing your financial advisor if your situation changes. 

Some changes that may indicate it’s time to switch financial advisors include:

Getting divorced. Divorce can have a major effect on your finances. Make sure your financial advisor understands these concerns and is able to help you establish or update your plan accordingly. 

Relocation. A move can mean it’s time to switch financial advisors, especially if you move too far away for in-person meetings and that’s the way you like to communicate. While some financial advisors provide virtual meetings these days, it can be nice to have access to someone you can meet in person, especially if that’s what you’re comfortable with. It’s also important to work with someone who is familiar with the specifics of your location. A Connecticut-based financial advisor, for example, is likely more familiar with the tax laws and regulations in Connecticut that could impact your situation.

A change to your financial goals. If your financial goals change, either because you’ve met your original goal or have added a new one, make sure your financial advisor has experience helping clients with your new goals. 

New complexities to your financial life. It’s natural for your financial life to become more complex as you accumulate more wealth and responsibilities. Young adults just starting out in their careers may need only minimal financial guidance, but as your net worth grows and, especially, as you near retirement, you’ll likely need more specific support. If this is the case, refer to this specialized guide: Personal Finance for High Net Worth Individuals. 

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Chapter 4

Events That May Trigger a Switch

It’s not only changes to your personal situation that may signal it’s time to switch financial advisors. Certain events during your client-advisor relationship can also warrant change, such as:

Poor account performance. While anyone can have a bad quarter or a bad year, especially during volatile markets, if your accounts regularly perform worse than expected in good and bad markets, your financial advisor may not be giving your accounts the attention they need, or worse, the firm managing your investments may not be very good. You may need a financial advisor who will take a different approach to investment management.

Feeling abandoned. If you don’t feel like your financial advisor is paying enough attention to you or your investments, that is a legitimate reason to find someone new. At Heritage Capital, we believe investors should receive regular and frequent communication. Don’t put up with a financial advisor who makes you feel abandoned.

You don’t know what’s going on. You may hire a financial advisor so you don’t have to manage your investments yourself, but that doesn’t mean you should have no idea about what is going on with your money. If your financial advisor doesn’t update you about changes in the financial markets and economy and how that could impact your investments, you may want to find another advisor.

Chapter 5

Assessing Your Financial Needs

The first step in finding the right financial advisor is understanding your financial needs. After all, you can’t determine if a financial advisor will be able to address your needs if you don’t know what they are.

To assess your financial needs, start by defining your financial goals. These can be both short-term, like buying a house in the next three years, or long-term, like retiring by age 65. Make a list of any goal that comes to mind, no matter how far-fetched it may seem.

Next, evaluate your current financial situation. Calculate your net worth by subtracting your liabilities, such as loans or debt you have, from your assets, which are things like your savings, investments and home. Your assets do not include your income, but that should also be considered in your financial assessment.

After you have your net worth, take a look at your situation – your dependents, your lifestyle and your plans for the future. 

What areas do you need the most help with? Find a financial advisor who can provide that help.

At Heritage Capital, we provide realistic financial planning. We don’t just plop numbers and dates into a spreadsheet – anyone can do that! We offer very specific guidance as it relates to retirement planning, your Social Security benefits, taxes, your investments and overall financial planning needs. We help clients navigate transitions in life, such as divorce or the loss of a loved one. We offer active investment management and continual support. Many investors (and some professionals) naturally play offense when it comes to their investments and financial planning, but at Heritage Capital, we help clients be prepared for whatever life has in store. For more on what this looks like, click here.

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Chapter 6

How to Make the Switch

If you’re ready to switch financial advisors, there are a few steps to take. 

First, find out how your current financial advisor handles transfers. Can you switch at any time of year? If so, will your fees be prorated? Are there any penalties for transferring or liquidating? Is there a termination fee?

Next, take a look at your contract. You probably signed a management contract when you started working with your current advisor. Within this contract, there should be a termination clause that talks about how you can formally end your advisor-client relationship. Usually all that’s required is a signed letter, but it’s good to know all the details before cutting ties.

Before you switch advisors, make sure you get copies of all your historical financial records. Financial advisors are required to transfer all of a client’s records along with any investments he or she owns to a new advisor upon request. Just to be safe, however, it’s wise to get copies of your transaction history for your own safe keeping before parting ways.

If this all sounds intimidating, don’t worry. Your new financial advisor should be able to help.

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Learn more about Heritage Capital.