A Wiser Retirement®

213. How do I terminate a relationship with my financial advisor?

• Wiser Wealth Management • Episode 213

Share episode

Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.

0:00 | 30:57

On this episode of A Wiser Retirement™, Casey Smith is joined by Missie Beach, CFP®, CDFA®, to talk about how to terminate a relationship with your financial advisor. They discuss common reasons people part ways with financial advisors, understanding any terms related to termination, tips for communicating the decision to your advisor, and how to monitor the transition.

Podcast Episodes Referenced:
- Ep 118: What to Look for in a Financial Advisor

YouTube Videos Referenced:
- Financial Planner vs Financial Advisor

Learn More:
- About Wiser Wealth Management
- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
- Access Our Free Guides: Gain valuable insights on building a financial legacy, the importance of a financial advisor for business owners, post-divorce financial planning, and more!

Stay Connected:
- Social Media: Facebook | Instagram | LinkedIn | Twitter
- A Wiser Retirement® YouTube Channel

This podcast was produced by Wiser Wealth Management. Thanks for listening!

Speaker 1

Welcome to a wiser retirement podcast. We believe the best financial advice should always be conflict free. I'm your host, casey Smith, guiding you to financial freedom. Today is my co-host, missy Beach. Today, we're going to talk about how to terminate a relationship with your financial advisor. Hey, missy.

Speaker 2

Hey Casey.

Speaker 1

So this is kind of a weird topic. I mean, why don't we talk about breakups?

Speaker 2

Well, it happens.

Speaker 1

I mean, we usually break up before Valentine's Day, right, not after Valentine's.

Speaker 2

Day True story.

Speaker 1

So you know, there's a lot of reasons why you would terminate a relationship with the financial advisor, and this is something that comes up because we have a lot of new clients every single week here at Wise Wealth Management and very often we get the question of okay, well, I want to transition here, but how do I leave where I am?

Speaker 2

Yeah, people are always a little nervous to do that.

Speaker 1

And rightly so. I mean we do live in the South. We tend to be more passive. Aggressive than the not right.

Speaker 2

Yeah, people want to have manners.

Speaker 1

Right.

Speaker 2

I think so.

Speaker 1

I don't know about less so than maybe 20 years ago for sure, but what are some of the reasons why you would leave your financial advisor here? We wrote kind of jotted down a few that we see. I think the most Number one is misaligned investment philosophies.

Speaker 2

Oh yeah, I mean that's really the biggest one. And I think a lot of people don't realize that when they go into the relationship they're just like pool or opposites, and they might be in some big active management philosophy when they're really just index investors at heart and just need a low cost strategy to get them to their angle.

Speaker 1

Yeah, and I would say also too, is there's a lot of that, I think. What's the average advisor age in our business? I think it's in the late fifties, it could be early sixties, somewhere in there. There's just a lot of advisors that haven't kept up with the times, I guess, and so we see what we see is a lot of mutual funds.

Speaker 1

Oh gosh, yeah, so we open up the account and there's a lot of actively managed mutual funds Really since I believe the early 2000s, I think specifically 2004,. Mutual funds have lost assets to exchange traded funds, etfs for every year.

Speaker 2

Oh gosh, yeah, I mean, and if you just look up the underlying expenses of any of those mutual funds like say you're not a wiser client and you've got an old account with mutual funds in it. Just type in that, ticker into Google and look at the expense ratio. I can guarantee it's not going to be low. No, it's going to be up there and then there's the hidden cost.

Speaker 1

If you're doing this inside of a brokerage account, that fund manager is making trades all year long and what's going to happen is you're going to get a 1099 at the end of the year with capital gains, and so in 2022, which was a down year, double digit down year for the market people who had mutual funds were still getting capital gains tax bills. So you're paying income tax in a year that you actually didn't make any money, and so it's just not very tax efficient.

Speaker 2

No, and I've worked at advisory firms before that were fee only but had mutual funds in client portfolios and, trust me, that's a bad conversation to have with clients when their portfolio is down for the year and yet they're recognizing income on a tax return for money that they didn't see in their portfolio.

Speaker 1

And it really should be the opposite of that. You should be able to use tax loss harvesting to be able to create tax credits during those years, not not be subject to a fund manager offloading something with a low cost basis in a down year.

Speaker 1

So anyway, that kind of goes along with the misaligned investment philosophies. Underperformance this also is kind of subset of misaligned investment velocity. So typically if you have an active management philosophy, so you own a bunch of stocks that they pick for you, but those stocks kind of trade in and out. That's an active strategy. Or a lot of the mutual funds, if they are indexed mutual funds are going to be active strategies. And a lot, of, a lot of times in the short term when you need, when you think that you need, active management the most, is when it went, also when it lets you down the most. And so in the short term we don't see fund managers outperforming in volatile times and in the worst funds we see them actually underperform the market. In those cases they made the wrong bet.

Speaker 2

Oh yeah, and those that do outperform don't do it consistently year after year so when you see those little mutual fund ads, you know they maybe they outperformed the index one year right. But it's not like for their 30 year since inception, so it's very misleading.

Speaker 1

That's kind of the, that's a little bit of the downside to passive investing and, to be clear, we do have some active management inside of our portfolios. It's a very small percentage but it is there because there's a purpose for it. But you know, to be fair, that's not true. It's kind of boring to invest in index funds but statistically you win.

Speaker 1

The chance of any active manager beating the S&P 500 over a 20-year period is 2% over a 10-year period is 6%, and over a 3 to 5-year period you might have a 30% chance. So it's really really hard to play that game, and I could tell all of our clients there's no secret sauce to investing. We're a financial planning firm that does asset management and so therefore our value is not in portfolio stockpicking. Our value is in the whole holistic plan and then the portfolios that we build to match those plans long term. So underperformance really shouldn't be an issue if you're buying the average that nobody can beat. Basically, Exactly?

Speaker 2

And who's going to bet their entire investment net worth on active management if it's not going to be the index over the long run?

Speaker 1

Exactly Not returned emails and phone calls, communication issues. So I would honestly say that we see some pretty decent portfolios, not horrible portfolios. But you have to remember, in larger firms an advisor is going to have upwards of 3,500 clients and so after they've sold you that portfolio, they really don't, they aren't really gaining much more out of the relationship and so they have to move on to the next victim.

Speaker 2

Victim Good word.

Speaker 1

So it's when you email them. It's pretty common not to have a resource. There was a situation a long time ago. We took some clients to a golf tournament I guess it was at East Lake. I had to have been and I had like six extra tickets and I had an advisor friend in my social class that worked at a bank and I said hey.

Speaker 1

I've got these six tickets If you want to find some clients to go to the final round on Sunday. And there's there's a VIP 10 access and he's like oh, thank you so much. A few hours later he calls me back and he says I don't know any clients of mine that like golf. I was like how many clients do you have? He's like he's like about 3,100, but I really don't know them that well. See that tells it all right there Wow 3,100 clients.

Speaker 1

You couldn't find six, he wouldn't know. He wouldn't know if they walked down the street.

Speaker 2

That's awful.

Speaker 1

So high or unexpected fees? I would say that if you're not at a fee only firm, then you probably do have high fees. You just don't know it. There's so many ways to hide the high fees when you're not a fiduciary.

Speaker 2

Oh yeah, because when we get statements of new clients, it's hard to dissect those statements and figure out where the fees are being charged. Is it monthly, is it quarterly, annually?

Speaker 1

I think Everett Jones, I think their fee disclosures upwards of like 20-something pages. Yeah, I mean it's very confusing to figure out. I know the advisors know, but they're gonna work really hard not to tell you. There's one here locally that likes to tell his clients you don't pay me, the fund companies pay me.

Speaker 2

Who's paying the fund company?

Speaker 1

Yeah, I know who do you think is paying the fund company? It's coming out of your performance.

Speaker 2

Talking about hard to break up with. You just named one.

Speaker 1

Yes, exactly, it's pretty simple. If you're in META funds, you're paying some type of a 12B1 fee and then a lot of firms charge a fee on top of that for having your assets at the firm. Then there could be some type of commission on the front end. In a traditional setup. If you're at a large, like a Merrill or Wells Fargo, then there's many different types of accounts that you could open up. You could open up an individual stock account. You're probably paying over 2%.

Speaker 1

You could open up a RAP account. They're charging you 1% or 1.5%. Then it seems to me, from what we see on statements, there's also kickbacks from the META funds right, meta fund companies. That's an additional fee. So you're still close to 2%, 2.5%. It really adds up and it's really hard to tell exactly what the fees are. Those advisors really aren't equipped to answer those questions because they're all trained on how to avoid the conversation.

Speaker 2

Oh yeah, why would they want to disclose that?

Speaker 1

Well, in our world, in the fee-only world, your fees are pretty straightforward. They're all disclosed on a quarterly basis on your invoice.

Speaker 2

Oh yeah, that's what I tell all of our clients, it's all right there. That's how we sleep at night. It's so transparent. I have nothing to hide. Exactly.

Speaker 1

It's up to us to provide that value for what that fee is. Let's see Life changes. Yes, I guess on your side, for sure, the divorce typically you break up with the financial planner, although we've had a few when we keep them Diverses. We keep both of them.

Speaker 2

Yeah, we'll just split them up.

Speaker 1

Right Desire for a different service model. That kind of goes back to what we were talking about earlier. A lot of people will leave their financial advisor to come to Wiser, really because of our unique planning process it's not that the other firm was doing bad as far as portfolio management, but there's no direction. They're just managing assets. They didn't really assemble a full strategy for going forward.

Speaker 2

Or they did quote a plan, but it was 10 years ago. I'm like well, how's that a plan? How's that working now? Are you still on track? They're like I don't know. You know it's 10 years ago.

Speaker 1

Advisors will often do that. They'll do one financial plan and call it done. You can't do that. You have to do one plan and then monitor that plan and check in every six months to a year to make sure that plan is still going correct.

Speaker 2

That's what I explained to clients. That's why we never print a plan out, because it's not the right plan. As soon as it's printed, because the market has changed, their salary might have gone up, they might have changed something about their college decision or something. There's no point in printing out that 80-page plan and sliding it across the table saying here you go, Mr Client have a great life.

Speaker 1

We used to do that a long time ago. Yeah, the 80-page plan, the way it was done. There were no portals or anything like that.

Speaker 2

We've evolved into the digital age.

Speaker 1

You have your reasons. You decided that you're going to leave your advisor. The next thing you might do is take a look at your contract or agreement. Now, if you're at a big brokerage house, you have no idea what that is because it's hidden from you. You signed a bunch of stuff and you open the account. You'll never see it again. The theme here is you should never. I can't think of any situation where you can't get your money out of a %– firm, with the exception of annuities. So if you've been sold an annuity, you can leave that advisor still, but someone's gonna have to house that annuity for you. Now we have an annuity rescue program here, so we can get the annuity transferred Away from an advisor and held in an account where we can use Vanguard index funds. We really don't want to use it at all, but. But we have to have some way of rescuing those annuities from those high fees. So anyway, that's there. Or if you have a surrender period, sometimes you have to leave it for a little while.

Speaker 1

Yeah some of these annuities have 14 plus year surrender periods, especially the fixed annu and that fixed annuities, the Indexed annuities.

Speaker 2

Oh yes.

Speaker 1

Have a pretty long runway before you can get your money back where a fixed annuity? Typically, once it's annuitized, you would just leave it there, that's not that big a deal fix annuities like a big CD. You just don't get your money back exactly.

Speaker 2

But some of the really old annuities the variable annuities variable annuities might have some riders where it makes sense to Retain them. So if you're going to some advisor that's not a fee only, fiduciary annuity or Provider, sorry, they would tell you to take that annuity and roll it to an IRA. But for example, we had one client where sure we could have gotten a great amount of assets under management If we had just told him that. But in his case it made sense to leave it with the annuity company because it had this great income rider benefit Right. So we said, hey, mr Client, you just need to leave it there and let it ride, even though he's outside of the surrender period. So that's where fee only really comes into play, doing the right thing for clients at all times.

Speaker 3

Are you curious why annuities keep coming up as a potential investment option? People are often told that annuities can effectively mitigate investment risks and help secure their financial future. However, annuities often benefit the salesperson. It might not be the best choice for you as a consumer to learn more about the various types of annuities, the negatives of owning them and better investment alternatives. We have a free e-book on our website just for you. To download our e-book, buy or be aware why do they keep trying to sell you that annuity? Simply click the link in the episode notes or visit wiserinvestorcom slash guides. Now let's get back to the episode.

Speaker 1

Generally speaking, when you want to leave a firm you don't have, you don't have to worry about Any fees. Leaving might be $50.

Speaker 2

To transfer the account and that's the custodian that's charging that correct, not the advice, that's true.

Speaker 1

So the another way, I guess another roadblock we often see is, well, the markets down and it's not currently, but this happens a lot when the markets, the markets down. I'm gonna leave it there and when the assets rebound then we'll transfer it over.

Speaker 1

Oh yeah, a lot of people think that and that's I Understand they don't want to take losses, but you have to understand when you're leaving a firm and you're moving into like our firm which uses Charles Schwab as a custodian, we can really pretty much hold anything. So we don't ever liquidate and move. What we do is we move in kind.

Speaker 1

Yeah, so if you had coca-cola stock there, you're gonna have coca-cola stock here, and once it's here, then and you wait about I guess about two weeks after we get all the cost basis information. So now we understand what you paid for it and then a game plan is simple. So we sit down with Andrew when you go through. We decided, okay, this is the game plan of how we're gonna handle these individual securities. You would you would never just liquidate the portfolio move it over if it's taxable.

Speaker 1

Right, and that's what a lot of clients are fearful of that's what they're fearful of, but they have a right to think that, because I think most Advisory firms will force you to liquidate. Yes and move over, and that's not the prudent thing to do. Why like, for example, if you had IVV, which is the S&P 500 by Black Rock eye shares, and but we use VOO for the S&P 500. Why the heck would you, would you sell IVV to buy VOO and pay a tax?

Speaker 2

Oh, I know, yeah, yeah In some firms.

Speaker 1

Oh, this is what. This is the fund we use Not our preferred mix. So now our preferred mix. So what we do is we're able to go in and say, okay, we're going to keep these five securities because they're similar to what we're using. And then we tell our computer, hey don't, these are the same as, and so now we can start rolling forward in our model, but we're using securities from your old portfolio to make that work for you, because we don't want to cause any negative tax consequences.

Speaker 2

Absolutely.

Speaker 1

And then individual securities now we can use, if they're large enough, we can use direct indexing. So instead of using ETFs, we skip the ETFs. We go right to create our own index Like it. Like an ETF, yes, but instead we take your stock and we use your stock to build that index and then, as you own, you know, 500 companies not all of them are profitable every year. So you take, you harvest tax, harvest some of those losses and then you're able to kind of sell off those old securities that you had to work them into the new portfolio. So there's a lot of tax efficient things you can do.

Speaker 2

Oh yeah.

Speaker 1

But most firms don't work that way because it's not easy.

Speaker 2

No, it takes time to analyze and figure out where you can re engineer the portfolio to work with what a client already has in the most tax efficient manner which is the benefit of a boutique firm?

Speaker 1

If you're, if you're at a mayoral or if you're some big firm, you're just a number.

Speaker 2

Yeah, I know.

Speaker 1

The advisor is just a number, that's more important. Right, yeah, so so in the end they're not going to be able to to really customize that portfolio, you got to be black or white you can't be in the middle.

Speaker 2

Yeah.

Speaker 1

So another, another thing to think about is you don't have, you don't have to communicate to the advisors, you're leaving.

Speaker 2

Oh yeah, people are kind of deathly afraid of that in some cases.

Speaker 1

So if you want to avoid it, you can just avoid it if you want. Some people don't want to do that. They feel like they owe them. Something I would want a client to tell me is you don't lose clients very often, but I would say this is why I'm leaving.

Speaker 2

Right, yeah, let me know so I can improve my process, right.

Speaker 1

So what most people will do is they sign the paperwork to transfer. So for instance, here you would sign open up Charles Schwab accounts. You sign transfer form, that transfer form is delivered by Charles Schwab to the old company where you, wherever you are, the old advisors company and then basically there's a hold put on that accounts and their trades can be made. And then a few days later the two companies talk and then all the transfers happen from old company now into new company, new brokerage, and that's it. So the account just kind of disappears off off their platform and off you go.

Speaker 2

No harm, no foul.

Speaker 1

Wait. Now some people will ask me to draft a letter for them, and so the letter goes something like dear mr, mrs advisor, thank you for your service and helping me with my portfolios. In the past. I've decided to change to a fiduciary fee only financial advisor, who's now going to take over the asset at my asset management, and then it's really that simple.

Speaker 2

Yeah, you don't need a ton of details.

Speaker 1

I've had some people go on. I just like this a friend of mine, I know him so well, and they'll call him and let's say hey look, I need more in-depth financial planning and usually most people don't do in-depth financial plan. So they usually like well, I don't, yeah, I don't do that and I was like well, I've decided to move here, and everyone and everyone's kind of yeah, okay, that's what you need. I don't provide it so that that makes sense. So it's not as hard as you think it is.

Speaker 2

No, it's really not, because most of the big Brokers don't do the financial planning. They're not going to review your home and auto insurance and look at your life insurance Needs, unless they're selling life insurance. Oh, where they'll just kind of throw it out there be like a Million-dollar whole life we had a.

Speaker 1

We had a Delta pilot not too long ago that called me up and he said hey, I need to. How are you guys to do financial planning? Because I met with this Northwestern mutual guy and he told me I shouldn't contribute to my 401k and I shouldn't do the and start the market-based cash balance plan and instead I should just put $6,000 a month into a whole life policy. I was like that was. I said you know, you went back to his office that day. Yeah, guess what? I got a prospect it's gonna put six thousand a month into his whole life policy and and if he had done that there'd been no. I mean, that would been detrimental to the pilot.

Speaker 1

Yeah, but but if he had done it the Northwest Mutual Agent There've been no consequences Is he would have been suitable technically.

Speaker 2

Yeah, pass that fiduciary bar exactly. So low. That's what people don't understand. Like fiduciary and fee only Are not really interchangeable. You know like brokers can be a fiduciary but Not really looking out for the car. Yeah.

Speaker 1

I'm still not looking out for client. Yeah, I mean that goes back. We've talked about this in other podcast. But they're just the three different business models. You know you have the the average Jones typical business model, where you know you invest in each fund they collect 4.25 percent commission.

Speaker 2

Oh yeah, and clients are not aware of that. They are mad when you point out to them like oh well, this fun they put you in there was a front-end load. They made almost 5% of what you put in there, so you have 5% loss from day one.

Speaker 1

Yeah the other business model is it looks like, it looks like well, like us and wealth management, but it's basically a wrap account that you're paying just one flat percentage for everything. But then those people in some cases can be fiduciaries, but they're only fiduciaries in the planning process and once they're done do with the planning, then they turn into salesmen and they're not fiduciaries. And then how do you know that? And there's no disclosures for that. No saying that okay, I'm no longer acting as your fiduciary such a blurred line.

Speaker 1

So that's called the fee based model and that and what happens is people leave these big brokerages houses and they they go to work for themselves, independent firm, but they bring their same bad habits. Yeah they don't change their tactics. They just wanted more money.

Speaker 2

Yeah, that's why they leave. Is it's about confidence to go out on their own? Yeah, why pay the overhead of exactly Merrill, or?

Speaker 1

well then you have the fee only model where you're fiduciary the entire time. And that that's the part that only 4% of the business operates this way, which is really frustrating. I mean it's good for us. About marketing standpoint, some days I feel like it doesn't matter because no one understands it anyway. The client doesn't understand it.

Speaker 1

I think there's safety at being at a huge firm and there's really not. I was trying to explain it. Somebody recently is like right now we operate in a team of five. You're touching all five of us in different parts of the planning process. You go to a big company. You're talking to maybe one person with an assistant.

Speaker 1

Yeah and they're in a silo, they're not working, they don't have, they have resources that they could go and talk to about your particular case or pawn you off on, and you know this asset manager or this person who does estate planning, but really you just have one, one person.

Speaker 2

Yeah, exactly, you're only good as that one person, where we're in a boutique firm.

Speaker 1

You're getting more of. You get more of the holistic approach we know who you are.

Speaker 2

We know if you like golf or not.

Speaker 1

Yeah, exactly so it's. It can be very confusing to the public. In the UK, australia, china you cannot sell a product and get paid by that product where in the US, that's like the American way, you know.

Speaker 2

Mastop.

Speaker 1

Yeah, and it's tried it. There's been time to change it. The Republican Party is very favored toward, toward the Special interest groups from the big insurance companies. So there's been a few times where, like in when Obama was in office, he's okay, it's gonna be a fuchsia standard for all. That lasted at what a quarter or two and some things passed, but then the Republicans defunded it. So it's been kind of frustrating from a political standpoint because the party that probably most of us are voting for in the south, it's that the same party that it's financially Suppressing us from a pure fiduciary standpoint. But if you think about it, if, if, if it actually went through and there was a pure now to water down fiduciary standard, think of all the annuities. It can no longer be sold. Oh.

Speaker 2

What in? The world be a better place all the life insurance that wouldn't be sold.

Speaker 1

So you understand why they spend millions and millions of dollars in lobbying efforts because they're making so much money on these, on these products, that you, you know for no reason, you know no reason at all.

Speaker 1

So anyway, once you, once you sign accounts and you separate from the advisor and the money shows up here. That usually takes two to three weeks to do that process and then after that is it's kind of a smooth sailing. Once you get the planning done and once you get the accounts allocated, then it kind of turns into a monitoring situation.

Speaker 2

Exactly that calendar year. You would have 1099s from your old custodian and your new, and no big deal. Your CPA doesn't mind, it's just a couple entries. Seven, one.

Speaker 1

Then after that it's all everything on one 1099 for each per account. Yeah, so anyway, hopefully that was informational on the transition. I think a lot of people think of themselves as being loyal. I think ultimately, you have to be loyal to your best interests.

Speaker 2

True, and another thing to point out is that, while Wiser has a really high retention rate, that's not the case of these other providers. So they are used to turnover and churn in their client base, so they're not shocked when someone says, hey, I'm out the door or they see assets going out.

Speaker 1

I believe that the average retention is like five years at most brokerage. Oh wow, that's really short. Yeah, I think that's correct and that could be an old number. Well, that kind of makes sense.

Speaker 2

That's when clients wake up and realize like hey, you don't really know me, you're not really paying attention to me anymore. Like, what's changed? What do I need to do to reposition? My whole family structure has changed. My kids are gotten older, I'm five years closer to retirement. What do we need to be looking at? And the advisor is just kind of silent.

Speaker 1

Right, right.

Speaker 2

Okay, I'll buy your stat.

Speaker 1

Yeah, we have a 99% retention rate over that same time period.

Speaker 2

Yeah, which is crazy.

Speaker 1

So well. We have a couple of other episodes. Episode 118, what to look for in a financial advisor. If you want to dive into that a little more, I do have a YouTube channel, a wiser retirement where we talk about financial planner versus financial advisor. If you want to schedule an appointment to talk with us about your financial planning and your future, you can do so by going to wiserinvestorcom and click on the schedule button. There should be a link for that in our show notes as well. Thanks for your time today, missy.

Speaker 2

Thanks, Casey.

Speaker 1

And we'll see you guys next week.

Speaker 4

Thanks for listening to a wiser retirement podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today at the wiserinvestorcom and reach out.

Speaker 2

This episode was produced by Edward Versandes.

Speaker 4

This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Wiserwealth Management Incorporated is a registered investment advisor with SEC. The host and or guest may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guest of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.