- You trust your financial future to any broker who manages your assets, so it’s important to be sure you have the right one.
- Once you select a broker, it’s hard to admit that you may have been wrong (it’s a big decision).
- You don’t need your broker to be your friend.
- If you do decide to move to a new advisor, you owe your old broker only simple courtesy as you dissolve the relationship.
- Good preparation eases the transition.
- (Note: we first published this article several years ago. We are republishing it to make it more available – it was “locked” in a discontinued part of our old website.)
Many people come to Sensible Financial® or another new advisor while still involved in one or more existing financial services relationships. Even if you have decided to retain a new advisor to help you manage your financial assets, you still have the seemingly difficult problem of severing your existing tie(s).
You seek out a new advisor for a reason. You may be unhappy with your recent investment performance or with the service you’ve been receiving. Even so, you may feel uncomfortable telling your current broker you’ve decided to work with someone else.
This article discusses why you might be uncomfortable, why you shouldn’t be, and what you can do about it.
We’re talking about your life here
Choosing someone to manage your financial assets is both complicated and important. Complicated because it’s not always clear what advisors should do for you, and it’s difficult to identify advisors who do those things well. Important because your financial assets are the product of your hard work and saving discipline. They are your hope for your future – education for your children, a comfortable retirement for you, and the potential to realize your dreams.
You should feel confident in your choice, and your experience with your advisor over time should reinforce your confidence. A mistake can waste much of your hard work and effort, and result in a future much less financially secure than you hoped for.
Big decisions mean strong commitments
It’s easy to change small purchase decisions. If a store serves you poorly, you find another store. If a product (a breakfast cereal, a dishwasher detergent, a car) doesn’t satisfy you, you buy another product. You don’t give either decision a second thought.
Firing your broker is much harder. You seem to have a relationship with your broker, in a way you don’t with the store owner, the breakfast cereal manufacturer, or even the car dealer. You’ve (probably) shared personal information with your advisor, perhaps over a cup of coffee (provided by the broker). You may even have played golf together. Perhaps most importantly, you’ve “given” your money to your broker to manage.
You may need to make a change because circumstances are different now – your broker may have been right for you when you started, but no longer. Your needs may be greater than before, or you may want a new perspective. Or, it may be that you made a mistake.
If you feel that you made a mistake, this can make changing more difficult. It can be hard to admit to ourselves that we may have made a mistake on a big decision – it gives rise to difficult questions:
- If you made a mistake before, how can you be sure you aren’t making another?
- How much damage have you suffered?
Even beginning to think about these questions can be painful, and can cause you to put off making a change.
Don’t give up! Choosing the right investment advisor is important. Changing if your broker isn’t right for you is also important – the stakes are high. If you buy the wrong breakfast cereal, you’re out $3. If you have the wrong broker, and don’t change, your whole future is at risk.
As you think about a change, considering some key questions can help you move forward, even if some of them are difficult:
|How are circumstances different now, and what does that mean for your choice?||What made your broker right for you before, and what has changed? What do you need from an advisor now?|
|What aspects of your relationship with your current broker aren’t working?||For example, do you need more information than you are receiving? Are the results different from what you expected? Are you receiving less attention from your broker than you anticipated?|
|If you made a mistake before, how can you be sure you aren’t making another?||You know more now – you can make a better decision. You have a better sense of what you need and want. If you made a mistake before, you can watch out for the factors that pushed you in the wrong direction, and you can be more careful this time.|
|How much damage have you suffered?||It doesn’t really matter. Whatever there is in the way of damage has already been done, and staying with your current broker won’t undo it. The most important thing now is to avoid more damage.|
Then, make the change.
Your broker is your friend until you take your money away
Several Sensible Financial clients have had the unpleasant experience of learning that their broker ceases to be their friend the minute they announce a decision to move their account. Telephone conversations turn brusque and formerly attentive service turns to indifference.
If your broker really was your friend, your relationship wouldn’t depend on whether you continued to be a client. True friendship builds on common interests, shared experiences, and mutual caring.
You most require from your broker reliable advice that is:
- Technically correct
- Focused on your personal circumstances and preferences
- In your best interest
The last two points require that your advisor know you and your circumstances well. They do not require that your advisor be your friend. In fact, the list of requirements is very similar for all professional advice you seek, such as from a doctor or an attorney. Most people don’t think of their doctors or attorneys as friends, and if they do, the friendship is much more likely to be genuine.
How much do you really owe your broker?
It’s not surprising that you would feel a personal link or obligation to your broker. As good salespeople (most brokers are product salespeople), brokers attempt to induce a sense of obligation in you, the customer. If a salesperson can make you feel obligated, you are more likely to buy what they are selling, and less likely to argue about the price. As a result, successful brokers are likely to be good at encouraging you to like them, and at engendering in you a sense of personal obligation.
It’s fair to ask how far your obligation extends, or if you even have an obligation.
We owe obligations, just as we owe debts. In our personal relationships, we accrue obligations as someone does things for us without compensation. Small personal favors, exchanging small gifts, expressions of concern – each of these is an expression of interest in, and concern for, the other person in the relationship, and the receiver incurs a small personal obligation to the giver.
In contrast, you have paid for all of the small personal favors, gifts, and expressions of concern your broker may have given you. Whether the fees and commissions are explicit or not, the makers of the products and services you have purchased have passed on some of your dollars to your broker.
However, because those payments are indirect, because you do not write your broker a check, you may not realize that you have already paid your broker.
So, how much more do you really owe your broker? Because you have paid for all of the services and all of the small extras you may have received, common courtesy suffices. You owe your broker no more than you owe any other provider of services.
If you decide to dissolve your relationship with your broker, the best approach is professional and matter of fact:
- Make a list of your reasons – your broker is likely to ask, and you will feel uncomfortable if you have no good answer. This step also helps to ensure that you have made a good decision.
- Confirm with your new advisor the logistical steps you will be taking, and what, if anything, the process will require of your old broker. Now you will be able to tell your old broker exactly how to proceed.
- Recognize that your old broker may react with hostility to your decision – while you are moving on to a new advisor, your old broker is losing a client, and losing revenue.
- It’s also a good idea to be sure that any unusual requests you may have for your old broker be completed before you move to close your account. (For example, many new advisors will recommend that you sell certain security holdings. Knowing your cost basis for all securities acquired through your old broker will be very helpful in these circumstances.) Once you announce your decision, your old broker will have more to gain from serving ongoing clients than from meeting your needs. In addition, even if your old broker intends to continue to serve you well until your account is closed, your broker’s firm may have rules that make that difficult.
- Once you are ready to proceed, speak with your broker to communicate your decision and specify your action requests. It may be helpful to follow up in writing. A direct approach minimizes bad feelings and confusion.
- Be prepared for your broker to try to convince you to stay. Your list of reasons will come in handy here.
- Rely on your new advisor to help with the transition. This is an excellent opportunity to observe your new advisor in action. Do things proceed smoothly? Does your advisor warn you in advance of the glitches that can (and frequently do) occur? Good preparation is essential to making the process as painless as possible.
As with many actions that can seem difficult, the anticipation is frequently worse than the event. Especially if you didn’t know your old broker before, your relationship may simply cease to exist once the transition is complete.
If your broker is “family”
If you hired a friend or family member as your broker, moving to a new advisor is likely to be more difficult. You do have a real relationship. Once you move to a new advisor, you’ll still have contact (perhaps a good deal of contact) with your old broker. In these situations, the matter of fact approach is doubly important.
There are likely to be hurt feelings even if you treat the situation professionally. You must judge whether the expected improvement to your finances is worth the anticipated damage to the relationship.
The extra difficulty of leaving a “family” broker suggests that hiring one in the first place may be a poor idea. If things don’t work out, you are likely to suffer more damage to your financial situation by waiting longer to move your account. Introducing your money into a personal relationship can cost you both your money and your friend.
Make a new plan
It’s easy to feel locked into a relationship with your current broker, even if you’re dissatisfied. You may find it very difficult to tell your broker you’ve decided to move on. Additionally, and importantly, you may be uncomfortable making a change because doing so seems to admit that you have made a mistake.
However, having the right advisor is much more important to you than potentially hurting your broker’s feelings, or even hurting your own feelings. Your financial future is at stake.
Ultimately, if you decide you can’t afford to leave your financial security in your current broker’s hands, you owe it to yourself to make the appropriate transition.
 With apologies to Paul Simon.
 Broker is just one of many terms for people who sell financial products or services. You may also see or hear “financial advisor,” ‘financial consultant,” and “agent” among many others. Unfortunately, the lack of commonly agreed and accepted nomenclature makes your financial life more difficult.
 One client told us that they would never have said “fire.” They thought that they were “just deciding to use someone else.” However, using someone else means not using your current broker – and your current broker will feel “fired.” It is helpful to remember this for two reasons:
 If you feel that your broker has taken advantage of you, and the damage is significant, you may wish to seek legal advice about whether you may be able to recover some of your losses.
 The vast majority of people you’ll run across in your financial services life are salespeople, even though “sales” is not part of their title. They may sell brokerage services, mutual funds, or separately managed accounts (people who sell investment products and services are frequently retail securities brokers or “registered representatives”). They may sell life insurance, long-term care insurance, variable annuities or equity indexed annuities (people who sell insurance products are usually insurance agents).
 For example, at least one firm we know of transfers “transitioning” clients to a general pool, and does not permit the broker to service such clients any longer.