How to switch financial advisors

Switching financial advisors is mostly paperwork, and it takes about a week. You choose the new advisor, open accounts with them, and sign a transfer form. The new firm pulls your investments over through ACATS, the system brokerage firms use to move accounts. Under FINRA’s rule, the old firm has one business day to validate the request and three business days after that to deliver. You don’t need the old advisor’s permission, and in most cases nothing has to be sold.

The parts that cost money are easy to miss: an exit fee at the old firm, investments the new firm can’t hold, and taxes if anything gets sold along the way. Here’s how to switch without paying more than you need to.

Choose the new advisor before you leave

Don’t close anything first. If you cash out at the old firm and then look for someone new, you can turn a free transfer into a taxable sale and leave your money sitting in cash while you search.

Find the next advisor while the old one is still in place. Check the new firm the same way you’d check anyone: look it up on the SEC’s adviser search, read its Form CRS, and confirm how it’s paid. Our guides to finding a fee-only advisor and telling whether an advisor is really fee-only cover those steps. If cost is why you’re leaving, compare quotes in dollars: the median fee-only firm charges $4,500 a year for ongoing planning or 1% of assets. Our guide to whether a 1% fee is too much shows what that means at your balance.

Then ask the new advisor one question before you sign: “What will you sell in the first year, and what will the tax bill be?” A good answer has a number in it.

How the transfer works

1. Open matching accounts at the new firm. A taxable account for a taxable account, an IRA for an IRA, a Roth for a Roth. The new advisor’s custodian (the firm that actually holds the money) sets these up.
2. Sign the transfer form. It goes to the new firm, not the old one. Copy your name and account number exactly as they appear on your old statement. The SEC says most transfer delays come from a form that’s incorrect or incomplete.
3. The new firm submits it. The old firm validates it, freezes the account and sends the assets. Avoid trading during the move: FINRA warns it often complicates and delays the transfer.
4. Check the first statement. Compare it line by line with your last statement from the old firm. Look for missing positions, cash that arrived late (dividends often land at the old firm after the move), and your cost basis.

Accounts held at a bank, mutual fund companies that aren’t brokers, and retirement accounts can take longer. Your 401(k) at a current employer isn’t part of this; it stays in the plan.

What it can cost

Firms set their own transfer fees, so ask both. FINRA notes that a new firm waiving its own fees doesn’t reduce what the old firm charges, though some new firms will reimburse it. Advisory fees are often billed in advance; every adviser’s brochure (Form ADV Part 2A, Item 5) has to explain how you get a refund of a prepaid fee if you leave mid-period.

Investments the new firm can’t hold won’t move through ACATS. FINRA’s rule gives you three choices for them: sell them, leave them at the old firm, or have them registered directly in your name. If you sell, check the tax cost first. If you leave them behind, ask whether the old firm charges for an inactive account.

Keep taxes out of it

Move investments in kind. An in-kind transfer moves the shares themselves, so nothing is sold and there’s no tax. The new advisor can then decide what to sell over time, with the tax cost in view.

Make sure your cost basis comes across. Your purchase prices decide the tax when you eventually sell. Federal rules require the old firm to send cost basis information to the new one within 15 days of the transfer settling. Shares bought many years ago may not carry it, so keep your old statements.

Move IRAs directly, firm to firm. A direct trustee-to-trustee transfer isn’t taxed and has nothing withheld. Avoid taking a check made out to you. The IRS gives you 60 days to deposit it into another IRA, you can do that only once in any 12-month period across all your IRAs, and a retirement plan distribution paid to you has 20% withheld.

What to ask the old firm

Before you sign anything at the new firm, get these answers, in writing if you can:

1. What will you charge to transfer or close each account?
2. Which holdings can’t transfer in kind, and what would it cost to sell them?
3. Do any of my annuities or policies have surrender charges, and when do they end?
4. How is my prepaid advisory fee refunded?
5. How do I end the advisory agreement, and what notice do you need?

Ending the old relationship

You don’t owe anyone a long explanation. Send a short written notice ending the advisory agreement, dated, so billing stops. Expect a call asking you to stay. A fee cut offered on the spot is worth comparing, but it doesn’t change the reasons you started looking.

If your advisor is the one moving to a new firm, you don’t have to follow. FINRA suggests asking what the move would cost you, whether your current investments are available at the new firm, and whether your advisor is being paid to bring clients over.

The first 90 days with the new advisor

• Check every account arrived, with cost basis.
• Redo your beneficiaries. Don’t assume they came across with the assets. Confirm the beneficiary on each new account.
• Reconnect automatic deposits and withdrawals, such as monthly savings or retirement income.
• Get the plan in writing, including what will be sold and when.

Not sure the problem is the advisor rather than the fee? Our questions to ask a financial advisor work just as well on the one you have now.