Why Your Financial Advisor Dumped You

Kristin Orman By Kristin Orman
Research Analyst, The Oxford Club


From the Mailbag:

I have read all about shady advisors, and was pretty sure I had found one of the few good ones out there. For the most part, I have been happy with his performance. Apparently, the feeling wasn’t mutual because last week I received a “Dear John” letter from him.

He is giving me three months to take my business elsewhere. I have never heard of a financial advisor firing his client. Is that even possible or legal, and why would they do it?

Oh, it’s both possible and legal… and it is becoming more and more common.

There are dozens of reasons your financial advisor could have decided the two of you are not a good fit. And more than likely it was you, not him.

Sure, all brokers say they are in the business to serve clients. But they are really in the business of accumulating assets and generating fees. That doesn’t mean they want all of them, though. And your financial advisor decided he didn’t want your fees.

More than likely, your account was a casualty of your advisor’s success. As his business grew, some accounts became significantly more profitable than others. At this point, due to time constraints, the advisor has changed his focus. He is now providing services only to accounts that generate more revenue. Your account didn’t make the cut.

So before you do anything drastic, like cut off all of your hair or start a new relationship with a bottle of Jack Daniels, take a deep breath. It’s time to move on.

The relationship is over and there’s no reason for a reconciliation. Besides, if your account was not large enough to measure up to your advisor’s new standards, you didn’t need him anyways. It’s time to find your accounts a new address and go it alone. Here’s how.

1. Open an online brokerage account.

This step requires a lot of research. You will want to choose one with the lowest fees, appropriate account minimums and available trading strategies. This step is a lot like online dating. You will want to browse through a number of profiles before deciding which firm you want to go with. Once you’ve made a date, you’ll have to fill out the brokerage’s application form and open an account, or several accounts if you have more than one. Make sure to open the same types of accounts (IRA, Joint, etc.) you had with your old advisor in the exact same name.

2. Fill out the account transfer forms.

Before your movers can carry your assets out of your broker’s house, you will need to fill out an account transfer form for each of them. Investment professionals call this process “ACATing.” That is because most account transfers are made using the Automated Customer Account Transfer Service (ACATS) system. The forms should be available online, but if you can’t find them, you can always request them from your new investment house. The great part about ACATing is that you don’t have to talk to your old advisor’s firm. Your new online broker will do it for you.

When you fill out the transfer form, make sure you check the “full” transfer box. Your new firm will also want a copy of your most recent account statement from your former firm. Also, ensure the account numbers and name you list on the forms exactly match those on your old statements. If they don’t, the transfer will be rejected and you will have to start the process all over again. If all goes well, the transfer should be complete in three weeks or less. ACATS should take just six days.

3. Pay the “transfer out” fees.

Your former firm will be leaving you with a few parting gifts in the form of “transfer out” fees. These fees could be hundreds of dollars. And if you are transferring out an IRA, you will be in for another cost: the IRA custodial fee. Ouch!

But the joke is not entirely on you. Now you understand why divorce is so expensive – because it is worth it.

Managing your own investments requires some time and commitment, but you won’t have to quit your day job. And The Oxford Club is here to help. Your advisor did you a favor and may have introduced you to a new favorite hobby. It may not be easy at first, but if you stick with it, being your own advisor can be very rewarding in more ways than one.

Good investing,