Severing ties with a financial adviser may be helpful for you to reach your goals.Anchiy/Getty Images
Poor service and high fees are among the most common reasons for wanting to leave a financial adviser, but people often stay longer than they would to like because of roadblocks. If you feel stuck, invest some time in the process and you’ll find that the hurdles are actually quite surmountable.
Where else do you go?
The big challenge is figuring out where else to invest. You can find a new adviser, invest on your own or use a robo-adviser.
If you don’t want to move your money to another financial institution, you could ask for a different adviser with the same firm and hope that someone else will give you better service. You could also search out a new adviser elsewhere. And remember, you could go with an independent money manager, a firm that is not affiliated with a bank or a mutual fund company.
What is a robo-adviser? Who should use one to manage their investments?
Managing your own investments is also an option, and it’s actually quite easy. A portfolio of exchange-traded funds, or ETFs, is simple to set up and requires little monitoring. Even easier is owning an all-in-one ETF, which does the job of picking individual ETFs for you. True, you won’t have anyone to call for investing advice or hand-holding when the market goes into a tailspin, but you will save a bundle in fees and feel in control of your investments.
You could also look to a robo-adviser. Although you won’t have a personal, one-on-one relationship with someone, a robo-adviser will choose your investments for you and place your trades. With a modest amount of upfront work – opening accounts, answering a questionnaire and requesting a transfer – you can set up your accounts in a way that requires no work on an ongoing basis.
How do you sever the relationship while still feeling good?
Despite the poor service, it’s possible that you like your financial adviser as a person. It’s also possible that you are perfectly happy with the service but want to stop paying the high fees. When you have a long-term relationship, it can be hard to tell them you want out.
While it’s kind to think about someone’s feelings, you need to look out for yourself. Your money is too important to be compromised by paying fees without value.
You can choose to skip the difficult conversation with your adviser and leave quietly by simply requesting a transfer of your accounts through your new broker or adviser and letting them break the news.
If you do want to be upfront with them, explain that you have found another investment solution that is better suited to your needs and thank them for their work over the years. Trust me, they’ll get over it. When it comes down to it, being a financial adviser is a business, not a friendship.
Cost of selling the investments
If you’ve been with your adviser for years, you’ve likely made money on your investments. When the value of your stocks and mutual funds goes up, you’ve got a capital gain.
Capital gains are great, but you’ll need to pay income tax on those gains when you sell the investments. This can be a roadblock to moving your money.
Any investments that are sitting in an account that offers tax sheltering or tax deferral, like a registered retirement savings plan (RRSP), tax-free savings account (TFSA) or registered education savings plan (RESP), are easy to deal with.
That’s because you don’t pay tax on any capital gains when you sell investments in those accounts. The non-registered assets are problematic, since you might have to sell your holdings, which triggers a tax bill.
Some assets you hold with an adviser can be transferred to a new provider, but it depends on what the investment is and where you are moving to. Stocks, ETFs and some mutual funds can be held in online brokerage accounts, but other types of funds, like those managed by the firm the adviser works for, cannot be moved. You will have to sell these and transfer the cash over.
When switching to a robo-adviser, you will be liquidating your portfolio and building a new one from scratch, so everything will have to go. If you are moving to a new adviser, there is a pretty good chance they will want to change what you own, but they can help you figure out the tax impact of what and when to sell.
While no one likes to pay taxes, it shouldn’t be the reason you stay with an adviser you aren’t happy with. Finding the best place to keep your investments is time well spent, especially as we head into a new year.
It’s short-term pain for long-term gain.
Anita Bruinsma is a Toronto-based certified financial planner at Clarity Personal Finance.
