Knowing when to make a switch
The decision to potentially switch advisors hinges on discerning between typical market movements and issues related to your advisor's guidance. While no advisor can perfectly predict or control market downturns, their role involves crafting a resilient investment strategy, clearly explaining its rationale and proactively communicating adjustments during turbulent times.
Consider the crucial aspect of fiduciary duty. Legally and ethically, your advisor should prioritize your financial well-being above all else. But not all meet this priority, according to Avenue Investment Management. If you suspect your advisor is recommending products that primarily benefit their firm rather than your portfolio's growth, it's a serious red flag that necessitates action.
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Get started todayBreaking up is hard to do... or is it?
Navigating a "breakup" with a financial advisor requires a degree of tact. You may choose to have an open conversation, outlining your concerns and the reasons behind your potential departure. Alternatively, initiating the account transfer can serve as a clear indicator of your decision.
Should you opt for a change, the process is generally streamlined. The Automated Customer Account Transfer (ACAT) system facilitates the electronic transfer of your investment holdings between brokerage firms. While some paperwork is necessary, a proactive new advisor will manage the majority of the process, leveraging automation to ensure a smooth transition.
However, be aware that certain types of investments can complicate this process. Proprietary products, which are exclusive to your current firm, locked-in investments with early withdrawal penalties, or specific tax implications associated with your current accounts can create delays or costs. A transparent prospective advisor will identify these potential roadblocks early on and provide guidance. Notably, some new advisory firms offer fee reimbursements or switching bonuses to help offset any transition expenses.
Key takeaways
Before making a final decision about your advisor, and certainly when selecting a new one or considering alternative investment approaches, carefully consider these data-backed factors:
- Loss analysis: Compare your portfolio losses against benchmark indices and the average investor experience.
- Fiduciary status: Explicitly confirm if a prospective advisor operates under a fiduciary standard.
- Fee transparency: Understand the fee structure.
- Service alignment: Does the advisor's expertise align with your specific needs, such as retirement planning, estate planning or alternative investments?
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While the prospect of change can be unsettling, remaining with an advisor who doesn't instill confidence or whose performance raises concerns can have significant long-term financial consequences. Remember, you are paying for a service that should provide expert guidance and peace of mind.
Furthermore, consider exploring different models. Robo-advisors offer a cost-effective, averaging 0.2% to 0.25% annually in Canada, with an automated solution for many. Self-directed brokerage accounts empower informed investors to manage their own portfolios, potentially saving on advisory fees altogether. However, for complex financial situations involving intricate retirement income strategies, specialized asset classes, or estate planning, a dedicated financial planner or fee-only fiduciary brings invaluable expertise. When interviewing potential advisors, ask about their specific experience and success rates in these areas.
Many reputable services streamline the switching process and offer transparent fee structures. Don't let inertia keep you in a potentially underperforming or unsatisfactory advisory relationship. Taking proactive steps to ensure your financial well-being is a sign of smart financial management, not a dramatic move.
Sources
1. Avenue Investment Management: Understanding Fiduciary Duty: How It Benefits Canadian Investors
2. DTCC: About page
3. Investment Executive: Compensation: Bonuses to switch firms shoot upward
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