By Dr. James M. Dahle, WCI Founder
Every week, I get an email from someone who wants to fire their financial advisor. Sometimes they are upset about high fees, bad customer service, or bad advice, but often they just wish to “take control” and do it themselves to minimize investment costs and maximize investment control. It should be very clear to any reader of this blog that I have no problem whatsoever with using an advisor, so long as the advisor charges a fair price for good advice. If the advisor charges too much or gives bad advice (or both, as is often the case), you should fire them. You can then either hire a good advisor or become your own financial advisor.
Here's what to think through if you want to fire your financial advisor.
There's No Rush to Fire Your Financial Advisor
For some reason, once people make the decision to fire an advisor, they seem to be in a big rush to do so. There's no reason to rush. If you spend a few months educating yourself, drawing up a financial plan, and writing an investment policy statement (all of which you should do before becoming your own financial advisor), that won't harm you. You simply won't spend that much on commissions or fees in just a few months. Take your time.
Do You Get Bad Financial Advice?
I have no qualms in recommending that you fire an advisor that gives bad advice. If your adviser recommends market timing, sector rotation, frequent churning of investments, mixing insurance and investing, high expense ratio mutual funds, loaded mutual funds, or individual stock investments, then they need to be fired. This is an easy decision.
If you've decided you want to do it on your own, then fine. You're probably not going to do worse than this chump, especially on an after-fee basis. Go for it without a second thought. Here's a good example of a typical email I get about advisors like this:
“I had a financial planner (at least he is a CFP) who I thought had my best interest at heart. Then you opened my eyes to all the money I was losing: loaded mutual funds, 1.5+% expense ratios on actively traded funds, $50+ transaction fees for stocks that were trying to time the market. Needless to say, I've submitted paperwork to move all my money away from that account, and have created a portfolio of index funds (80/20 stock/bond) with an average expense ratio of 0.14%!”
Is the Financial Advice Too Expensive?
However, I occasionally get an email about firing a fee-only advisor that I know is pretty good. The only good reason to fire a good advisor is that you would like to boost your return by avoiding the fees. This is OK, too. I don't pay an advisor for financial planning or for asset management for exactly this reason. Whether the advice is costing me $1,000 a year or 1% of my portfolio, I simply don't value it. So, I don't pay for it. I feel like I can do just as good of a job for just a little bit of time that I would otherwise use playing video games or something. But I always pause before recommending someone else fire a good advisor because I don't know that this person can do it as well as the advisor.
For example, I once had a reader that wanted to fire a typical DFA-authorized advisor. He was being charged fairly typical fees (1%, I believe) for a small and value tilted portfolio of low-cost DFA funds. The investor didn't seem to have much of a plan for his investments after firing the advisor but seemed to be leaning toward something very simple, such as a three-fund portfolio or a target retirement fund through Vanguard. Is it possible his lower cost simple do-it-yourself portfolio will outperform a higher-cost tilted one? It's possible, but it seems less likely to me. Even adding in the fees, it's quite possible that the investor could do worse investing on his own, especially if he falls prey to many of the common behavioral errors that investors are famous for, like selling low.
If you're firing a good but expensive advisor to do it on your own, you'd better have an investing plan that is just as good (or at least close to as good) as the advisor's plan for you (feel free to steal it if you like it, since you already paid for it.)
Consider a Lower Cost Financial Advisor
If you're just upset about the fees and feel like the advisor is ripping you off, then consider going with a lower-cost advisor. You can hire an hourly financial planner for an occasional financial checkup for a few hundred dollars. If you want asset management, you can get that for four figures a year. Some people like a “full-service advisor” and are willing to pay for it. If you're fee-conscious but still like having someone else manage your assets, all of these firms are much cheaper than the typical advisor. If you need some recommendations, here are some WCI-vetted financial advisors who will charge you a fair price for good advice.
You Don't Have to Meet with the Financial Advisor to Fire Them
The physical process of firing a bad financial advisor is to simply contact the new custodian (such as Vanguard) who will send a form to the old custodian asking them to liquidate your retirement accounts and send them the money. You can request that taxable assets be transferred in kind. Your advisor will get the hint. If you're firing a fee-only advisor, a simple letter or email will suffice to terminate the fee arrangement. If your advisor has the right to place trades in your account, you'll also need to rescind that authority with a written notice.
Many brokers, mutual fund salespeople, and insurance agents masquerading as advisors will go into full-on sales mode to keep your business, hounding you to no end. A simple, “No thank you, I've made up my mind” is all you need to say on the phone. It can be a little harder if you're firing a friend or relative (all the more reason not to use one). Perhaps a more diplomatic “I value our personal relationship so much that I didn't want money affecting it so I've decided to move it elsewhere” would be appropriate. More likely, you'll have to wonder how good of a friend they are if they've put you into all those loaded mutual funds and whole life insurance policies.
Expect a Few Fees If You Fire Your Financial Advisor
You'll likely be paying some money to transfer your account away, perhaps a few hundred dollars per account. You may also have to pay commissions to liquidate some of your stocks and mutual funds in retirement accounts. In a taxable account, if commissions are high at your old brokerage, transferring them in kind to your new brokerage prior to selling can save you a lot of money. You may also owe some advisory fees, depending on your contract with the advisor.
Read it carefully. You can ask for more money, but I wouldn't count on getting it unless they've done something illegal, which is unlikely given the “suitability standards” that most advisors work under. They see you (rightly) as lost business at this point and are likely to charge you every dollar possible.
You could possibly save some money by keeping your accounts at the same brokerage and just eliminating the advisory relationship. Many advisors use low-cost brokerage services—such as Fidelity or Schwab—for your money.
Implement Your Investment Plan and Stay the Course
As soon as your money arrives at the new custodian or as soon as your advisory relationship is terminated, you can implement the plan you previously drew up. Don't stress over it too much; it becomes much easier to do it yourself as the years go by.
If you start managing your investments when they total a four- or five-figure sum, it'll be just as easy to manage a six- or seven-figure sum. Quick action is rarely needed in successful investing. Think of your portfolio like an aircraft carrier or a cruise ship—don't make rapid course changes and stay the course through any kind of weather.
Need to get your financial plan in place? Check out the Fire Your Financial Advisor course! It's a step-by-step guide to creating your own path to financial freedom. Try it risk-free today!
Have you had to fire a financial advisor? What was the reason for it? Did you move on to a lower-cost advisor, or did you start DIYing it? Comment below!
[This updated post was originally published in 2013.]
Good write-up. Another option, rather than jumping in too quickly, is to remove a portion of your account to manage yourself. It doesn’t have to be an all-or-nothing transaction. I have clients who manage their own taxable account, but send their retirement accounts to me. I have no problem with this option and other advisors shouldn’t either, as we need to respect every client’s abilities. If a friend is managing your investments, you can point to your better after-fee returns (if it works that way) as a reason you are taking the remainder of your account with you.
In this situation, if either you or your advisor is buying and selling individual stocks (or ETFs for that matter), be sure you have an open line of communication on any losses you incur to avoid the 30-day wash rule. It also helps with mistakenly overloading on any specific sector or stock.
Advisors are for those investors who don’t have time, desire or ability to manage their own investments. Anyone who has the time to research and apply a sound financial plan should save their money, unless they prefer the emotional detachment from having someone else do the work for them.
Really there is very little time required. For the most part there isn’t much evidence for more than a 3 fund portfolio. A good argument can be made for small value tilt bc of additional risk but that’s about it. If one wanted to they could easily spend less time then they do finding and discussing the situation with an advisor. It also avoids all the effort and time of trying to figure out if the advisor is doing his/her job appropriately. Now some people like complicated portfolios. Mine isn’t so simple but it isn’t bc there is good evidence that I need or will benefit from a complicated portfolio. If a person just spends the time to read one of the boglehead books that is all inclusive then they are set with knowledge at this point that will likely beat the great majority of AUM situations over the long haul. Costs matter.
Interesting that in all the discussions of low cost fee only advisors the WCI never mentions perhaps one of the biggest, if not THE biggest (by assets under management) Evanson Asset Management. They charge a flat fee like Cardiff and FPL, and they use DFA. Their flat rate charges generally run from 0.05% to 0.15% of a portfolio.(yes those are correct decimal points, much less than the so called “average” 1% which is a total ripoff). I realize FPL is a WCI advertiser, but that usually is not supposed to effect the sharing of useful content for the WCI.. At least it has generally not done so as far as I can tell. WCI readers ought to know about Evanson, too.
Very good and balanced article, as usual.
One of the important points is you do need a plan for your money, whether you have an advisor or not.
Curious as to why you’re poo-pooing the 3-fund portfolio. If you utilize a buy and hold strategy and rebalance yearly it should outperform most actively managed funds. And with the low expense ratio will save you a pretty penny which as we know, with compound interest, can be significant over time.
More discussion about the 3 fund and 149 other reasonable portfolios an be found here:
https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/
I like the 3 fund portfolio, but I don’t see any reason it is somehow a magic portfolio better than other low cost, broadly diversified portfolios.
I wish there was a sample letter. I am trying to fire my advisor but I am not sure what to write.
Don’t write a thing. Contact where ever the money is going and have them pull the money there. Faster anyway. If they call and ask you what’s up you can simply say “We decided to try something different.” When he argues with you just repeat that line over and over. Or if your contract requires you to give written notice to stop AUM fees or something then write exactly that. “This letter gives the written notice required by our contract of such and such a date that we will no longer be engaging your services.”
A man with no investment licenses, no experienced advising other doctors on what to do with their finances. Profiting from calling books to people, you should be ashamed of your self. Your typical God doctor complex that you are better than everyone else and that you are the smartest person in the room. You probably won’t post this because you only put the good on your site so others can’t will still listen to you.
Thanks for stopping by and leaving such a useful comment Steve. I’m sure that’s really going to help a lot of doctors out. /sarcasm.
Seriously though, are you the same Steve Parente who was nominated to be the HHS Deputy Secretary? If so, congratulations!
Doctors should diversify there portfolio into all financial products, using instead of just the market, that’s why there are a lot of products in the marketplace today. Insurnace is a financial product and the only product that provides guarantees. Insurnace and investments make a great financial plan if you were to understand the power of using them both, you would be better off. Just because some Insurnace agent maybe took advantages of you, or you bought the wrong permanent product don’t knock everyone else’s plans.
Your program you advise people is all based on what if’s, on hypotheticals market returns. You or no other financial advisor, or stock picker can predict the market, and the only for sure things in life are death(which if you write about it I’m sure you and your cult like follower think you will never die) and taxes, which you don’t 100% understand or know tax law because you dont have an accountant to help you.
My advise to all your readers is diversify !!!
Do you sell insurance for a living?
I disagree that doctors should diversify their portfolio into all financial products. I find insurance-based investing products such as whole life insurance unattractive as investments.
Not sure what “program” you’re referring to, but whatever program I’m following certainly seems to be working. I hope your program works well for you. There are many roads to Dublin.
The Insurnace program my advisor provided me has gone great, especially when the market crashed in 2008 and it took my investments 3 years to get back to even (my pre 2008 crash levels) This is your opinion, and I respect that, and you have to do what’s rite for you and your family.
Your readers have to understand that you get paid to blog, you get paid to sell books and you get paid for advertisers to put adds on your web site. So it’s easy to tell people not to spend money on Insurnace and say just like Dave Ramsey that Insurnace should not be a part of your financial plan. By the way Dave Ramsey admits that he owns whole life Insurnace, even though he says it’s a bad thing, This keeps his ratings up and your blog posting and book sales moving.
Best of luck to your plan to Dublin, I just hope in the next 20-30 years we don’t have another market crash and the markets continue to go up. All I know os a portion of my assets will always be protected from the downturns of the markets.
I fully expect the market to crash not only once, but 3-5 times in the next 30 years. That’s all worked in to my plan.
Not sure why you think I have some bias against whole life insurance due to ad sales. Many of my most profitable ads are insurance agents. My bias against whole life insurance is based on the merits, or lack thereof, of the product.
Glad your plan is working out well for you.
No I do not
It’s nice to have another post written by you personally, Jim. The last several guest posts were so long and humdrum that I found myself falling asleep while skimming them. It’s also fun to see the whole life insurance advocates trying (and failing) to outwit you. Keep up the good work!
Thanks for the feedback, both positive and negative.
If you are not sure, put your money into total stock using a DCA approach, do not look at for the next 10 yrs. You need to have a lazy personality to do it well in equity investing. Those who dont want to even change their lightbulbs are usually the best investors. If you are socially awkward, it is even better.
I’ve had an “investment manager” at one of the large banks over the last few years. He has given me an overly complicated portfolio that is too tech heavy!!! It did very well up until this year. I did ask him to take gains late last year/early this year as it was becoming obvious it would be a tough year with Fed raising interest rates, quantitative tightening, Russia/Ukraine, and China lockdowns.
He kept telling me it would be fine and didn’t reposition my portfolio. Now I have lost all my gains and have huge losses!!! Hard to know what to do now.
I have reported him to his manager. SHould I report him to FINRA also?
Thanks!
He didn’t do what you asked him to do? Seriously? Or did he talk you out of having that done? Because if the former, you should be able to successfully sue his firm for your losses.
At any rate, if you want a real advisor that gives good advice at a fair price, consider one of these:
https://www.whitecoatinvestor.com/financial-advisors/
Probably more like he talked me out of things I thought should be done, namely trimming and reducing exposure. He also did not follow recommendations of his own’s firms newsletters (like reducing exposure to international stocks etc).
Would someone please explain what Insurnace is? It’s all over the comments.
Instant furnace = insurnace
It’s great for camping in cold climates.
I never had a financial advisor. I’ve talked to quite a few and super non-impressed by the lot of them. I don’t think you can follow the conventional wisdom that I think derives from Modern Portfolio Theory without a financial advisor. Which is pretty much the game right there. I come from the old school and never chased that ideal to begin with. I didn’t even know having an advisor meant a custodial arrangement. Oh hell no.