How to manage the transition away from your financial advisor
Late last year, after I Accidentally Retired, my wife and I finally pulled the plug and fired our financial advisor. There are so many reasons why we decided to fire our financial advisor, and now we were left dealing with the aftermath.
Here were the problems:
- We were invested in proprietary mutual funds, that were not transferable to any other brokerage
- We were invested in mutual funds that were transferable, but that had high expense ratios and fees.
- We owned over 100+ individual stocks that comprised of 20% of our portfolio
- Because we had largely invested during the bull run, we had large amounts of long-term capital gains as a result on the above proprietary funds
All of this left us with a giant headache.
The good news, is that most brokerages can easily do a “in kind” transfer
So most of our assets, could be transferred over “in kind” – this means that they will simply be electronically ported over to the new brokerage.
No need to sell and take any gains, short or long-term.
But there were still many funds that were non-transferable or they were transferable, but had such high fees that keeping them seemed to defeat the purpose of firing our financial advisor.
So what do you do?
The bad news, is that you will need to make some decisions
There are three options in this situation are to;
- Hold onto the investments and keep these funds at the original brokerage
- Sell and pay taxed on any long-term and short-term gains
- Sell off the long-term gains and leave the short-term gains at the old brokerage until next year.
The solution for freeing up our assets from financial advisor purgatory:
I downloaded “Holdings by Lot” for our investments, which was a giant spreadsheet, and I went through each and every lot to make a determination of whether we sell, hold, or transfer.
Ultimately this ended up being a fairly large lift, due to the total number of lots we had, along with the gains we would have to take.
We focussed on how much money we could easily free up, by taking the least amount of gains. This turned out to be mostly bonds.
We simply transferred over all stocks “in kind” and any other transferable mutual fund.
Thankfully, we were able to move over 80% of all of our investments. We had to end up taking a decent amount of gains in 2020, but we held it at a number we were comfortable paying taxes on, and left the remainder for tax years 2021 and even 2022.
I am now continuing to sell off transferred assets, prioritizing those with the highest fees and any stock positions we no longer want, but have minimal gains.
Make sure that ALL of your assets you are invested in are transferable.
No matter who your financial advisor is, please make sure that all of your assets are transferable during an “in kind” transfer.
This gives you, the investor, much more leverage. Also, I would say that a fiduciary is NOT acting in the best interest of the client by investing in proprietary funds, so I would only work with an advisor that recommends the opposite.
I hope your transfer goes much smoother than ours did.
