Should you follow your financial adviser?

strategies of fund managers
  • Reconsider switching firms if you'll have to sell your securities.
  • Advisers starting their own firm may spend too much time tending shop.
  • Understand how your adviser is charging you for his or her services.

To move or not to move? That is the question people must answer when their financial adviser switches firms.

And it's a question many will have to address. Each year, about 13 percent of financial advisers leave their firm for a different one or to start their own, according to Cerulli Associates, a Boston research firm.

Thus, many of you will have to decide at some point whether you want to stick with your adviser or stick with the advisory firm.

So how should you make the choice?

The basic issues involve service and money. Will you receive the same level of service at the adviser's new firm? How much will you have to pay for it?

Consider these five specific issues when making your decision.

Access to desirable investments

If your adviser is moving from a big securities firm to a smaller one, you might actually be provided with a wider array of investment choices. That's because many big firms pressure their advisers to put customers into the firm's own mutual funds.

Think twice about switching firms if your adviser says you will have to sell off a substantial amount of your portfolio. Not only would you lose investments you might like, but you may also have to pay capital gains taxes. The adviser may have his or her own interests in mind -- earning hefty commissions on the trades.

On the other hand, you should also think twice about following the adviser if you discover you own funds for the wrong reasons. That could mean the adviser did not serve your best interests from the beginning. In this case, it might behoove you to look for another one at a different firm altogether.

Level of service at the new firm

There may be particular services at the adviser's old firm -- such as investment research -- that were important to you. Make sure that service will continue to be available at the new firm.

Advisers leaving to start their own firm may spend a lot of time running their company rather than looking after their clients' needs, says Mick Heyman, an independent financial adviser in San Diego. Heyman has switched firms three times in a 30-year career. "You don't want them to be distracted."


And if someone's going from a small firm to a larger one, the issue is, "Will they be the same adviser with the bureaucracy and more money?" Heyman says.

More value -- or less -- from your adviser?

"At our firm, clients are typically here because of how we do our cooking. I didn't bring them in," says Charles Sachs, a principal at Evensky & Katz Wealth Management in Coral Gables, Fla. In other words, customers are attracted to the strength and reputation of the firm.


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