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“Clarity affords focus.”

~ Thomas Leonard,
American Businessman

This question came up again recently from several of you so I dusted off a previous column and added a few timely updates.

Question: My financial advisor called to tell me that he changed firms again and sent paperwork to move my accounts. Why would he move and what should I do?

Answer: There are a number of reasons why advisors switch firms. In fact, I’ve done so when it was appropriate and necessary. When we relocated to Florida there was a move from one firm to another and also if there were an opportunity to better serve my clients.

You’re entitled to understand why a move is being made, if you agree with the reasoning, and then make sure it’s also in your best interest. Examples of why an advisor might change firms include an opportunity to join a more respected firm, leaving an unreasonable firm, increased convenience for clients and the advisor, improvements in office and staffing issues, the ability to offer a greater menu of suitable and appropriate investments, or unfortunately the move may be for less savory reasons like money.

Financial institutions are interested in attracting talent just like in the professional sports world, some firms will pay handsome retention bonuses to do so. This is why you should know all the reasons why your advisor is willing to go through the chaos and confusion of moving. Even when the move does make sense to you, it may still be important to recognize that some firms offer very attractive compensation packages as enticement for advisors to bring existing client accounts and future revenue to the new firm. In some instances these temptations can be in the six or seven figure range. Just as pro sports team pay up for performance and expect results, so do some financial institutions.

First and foremost, any changes you make should be in your best interest.Before signing any transfer paperwork, get answers to all of your questions, most importantly, why your advisor decided to move.

Once an advisor makes a move there are generally revenue and asset gathering goals to meet. Could this expectation influence the time and attention you’ll receive? With some firms, advisors who don’t meet their goals could face hefty repayment penalties or fines. The advisor who moves is typically required to stay with the new firm for a specific number of years. Does your advisor have a history of changing firms every so often? These are important questions to ask.

You’re a free-agent with choices; 1) You can go with them to the new firm, or 2) remain with the current financial institution and work with another advisor you may not know or like, or 3) explore other alternatives and opportunities with an advisor at another firm. If you do decide to follow your advisor, another consideration is that if you hold assets that are either proprietary (exclusive to a firm) in nature or just can’t be transferred to the new firm, there may be unintended consequences if you need to sell or liquidate positions with taxable gains. Also ask about any fees to close your accounts and if the new firm will absorb this expense.

First and foremost, any changes you make should be in your best interest. Before signing any transfer paperwork, get answers to all of your questions, most importantly, why your advisor decided to move. Expect patience and understanding from your advisor during this discussion. Ask why the new firm is better, request a disclosure of any financial bonuses, and keep the conversation focused on transparency and knowledge. As Sir Francis Bacon said in his 1597 Meditationes Sacrae, “Ipsa scientia potestas est” or “Knowledge itself is power.”

There are legitimate reasons for financial advisors to change firms, just make sure you’re convinced that the move is in your best interest, not just theirs. The Financial Industry Regulatory Authority (FINRA) suggests asking five questions when your advisor changes firms. Make sure you’re satisfied with the answers and never feel rushed or pressured to make decisions.

1. Could financial incentives create a conflict of interest? How much and what type of compensation did you receive to make this move (now and in the future)? Would this need to be repaid if you don’t achieve your requirements?
2. Can I transfer all my holdings? What are the implications if I can’t?
3. What costs will you pay (short and long-term) if I move with you? There may be account termination and closure costs at the current firm.
4. Would any new accounts be fee-based or commissioned? How will a new pricing structure compare?
5. How would the new products and services compare with the previous firm? What level of service will I receive?

Before making any decisions, make sure you’ve done your homework on the new firm and the reasons for the change. The Financial Industry Regulatory Authority or FINRA is a private corporate that provides a free tool to research the background and experience of financial advisors. BrokerCheck helps you make informed choices and proves easy access to information giving you a snapshot of a broker’s employment history, regulatory actions, investment-related licensing information, arbitrations and complaints. Here’s the website address: brokercheck.finra.org. Stay focused and plan accordingly.

The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC, 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email darcie.guerin@raymondjames.com. Website: www.raymondjames.com/Darcie.