Job changes are to be expected in a recessionary environment, even for financial advisors. Some may decide to seek greener pastures with another dealer and leave voluntarily. Others may be asked to leave.
These are really two sides of the same coin. Indeed a parting of ways can stem from any number of reasons ranging from disputes over commission payouts, differences of opinion over compliance matters, office politics, disagreements over sales strategies or something as mundane as who pays for an assistant or as serious as a dispute over whether an advisor's recommendations for clients were suitable. Dealers may also set minimum sales goals and encourage advisors who consistently fail to clear that bar to take their clientele elsewhere.
What you have to decide if your advisor moves is whether to follow your advisor to his or new dealer or remain with your current firm. This is not a decision you should make lightly because it almost certainly will affect your finances.
As I noted in last month's column titled What to do when your financial advisor retires, some firms operate under a business model where individual representatives "own" the clients, while other firms take the position that they own the clients.
If you have your accounts with a dealer that considers you the dealer's client, your accounts will be reassigned to someone else within the firm and you will or should be informed by phone call or by mail immediately.
Your former advisor may also contact you to say he or she will be relocating and will contact you about moving your accounts once that move takes place. However, until your province's securities commission completes the transfer of registration, he or she is prohibited by securities regulation from providing you with any investment advice and in fact can't answer any questions you may have about your holdings.
In the meantime, if you have any questions, you have to deal with whoever has been assigned to your account, which gives you the opportunity to see what level of service you can expect if you decide to keep your account where it is.
When someone new takes over your account, that person should call you and schedule a meeting to review your risk tolerance, investment objectives, time horizon and investment knowledge and other "know-your-client" information that the dealer has on file for each of your accounts. During that meeting, your new advisor should determine whether any of these facts about you changed since the last form was completed, which should have been within the last 12 months. The new advisor should also review your holdings and determine whether they are still suitable for you.
In almost all cases you should expect a smooth transition with few if any recommendations for immediate revisions to your portfolio, provided there was no major change in your circumstances since your previous advisor last contacted you.
However, if your new advisor recommends a bunch of switches, ask for the reasoning behind each and every one. It's a bad sign if the advisor takes offence with your questioning. He or she should be able to provide details as to why a specific asset mix or fund no longer meets your specific needs, and how the recommended asset mix or replacement fund is better suited for you.
On the other hand, if you deal with a firm that views your accounts as the advisor's property, it will be business as usual until the advisor moves. He or she will continue to provide you with the same level of service that you have come to expect and the move should be seamless.
Even so, you shouldn't automatically follow your advisor. Ask why he or she is making the move and what potential impact it will have on your investments. The advisor's answer may be pure pablum, so be prepared to ask more specific questions like whether the new firm will provide more or less research material than the firm that currently has your accounts. You should also ask whether the new firm is stronger financially -- not an unimportant question in a recessionary environment, especially when you consider that the financial strength of dealers varies widely.
Your advisor should also be able to explain what benefits, if any, you will receive from the move and conversely, if there are any potentially negative effects. Ask if the new dealer has an approved list of investment products and how it differs from the list of the firm where you currently have your accounts. Ask what is the new firm's policy regarding commissions and whether it differs from the old firm's. Ask whether there will be any costs involved in moving any of your registered accounts, and confirm that these will be picked up by the advisor.
Spend a few minutes searching the internet and specifically securities commissions websites to see if there is information pertaining to the new dealer and its principals that should concern you.
Ask to see copies of the types of statements the firm will provide, and compare these with what you are currently getting.
If you do move, you should expect statements from the old dealer on each of your accounts showing exactly what was transferred, and you should check these against your own records. The new dealer will provide you with statements of what was transferred; check these to make sure that everything you expect to be transferred was in fact transferred.
Of course, if you aren't happy with the level of service you're receiving and the answers you've received about the recent performance of your portfolio, you may want to consider getting some second and third opinions from other advisors. If several people tell you you have a problem and that your portfolio isn't suitable for you, cutting all ties with your advisor and current dealer might be an alternative to consider.
