People stay with an advisor they have outgrown for one practical fear: “I will have to sell everything and pay the tax.” Usually you do not.
Here is how a move actually works, and where the real traps are.
The one rule: move it, do not sell it
Selling an investment in a regular taxable account can create a capital gains bill. Moving the same shares to a new firm does not, because nothing was sold. The shares just change address.
Retirement accounts are simpler still. Moving an IRA straight from one institution to another is what the IRS calls a trustee-to-trustee transfer, and no taxes are withheld from it. The danger is the other route: taking a check in your own name and missing the 60 days you have to put it back. So do not touch the money. Let the two institutions pass it between them.
How the transfer works
You do not start with your old advisor. You start with the new firm. As FINRA explains it, the process begins with a transfer form that you send to the firm you are moving to. That firm requests the account, and most transfers run through an automated system.
It is faster than people expect. Under FINRA’s transfer rule, the old firm has one business day to validate the request and three more to complete it. In real life, plan on a week or two from the day you sign.
What may not move
Not everything travels. Three kinds of holdings cause most of the trouble.
Funds only your old firm sells. If the new firm cannot hold a fund, it cannot receive it.
Annuities. An annuity is a contract with an insurance company, not a holding in a brokerage account. Many variable annuities carry a surrender charge that can run six to ten years after each payment, so getting out early costs money.
Private or unusual investments. Some can be moved by hand. Some cannot be moved at all.
For each of these the choices are to leave it where it is, sell it, or exchange it. Before anything moves, ask the new advisor one question: “What transfers as it is, what does not, and what would selling each of those cost me in tax, in dollars?”
Five things to do before you sign
1. Download your records. Statements, tax forms and cost basis. Your login at the old firm may stop working after the move.
2. Ask about the exit fee. The old firm may charge to transfer or close the account. It is in your account agreement. Ask the new firm whether it covers it.
3. Do not sell ahead of time. “Cleaning things up” before the move is how people create tax bills they did not need.
4. Write down your automatic dates. Monthly withdrawals, deposits, required distributions. Make sure none of them falls into the gap.
5. Ask what the new advisor plans to sell. And what the tax would be. A new advisor who wants to sell everything in a taxable account in the first month should show you that cost first. That includes me.
Changing who advises you is paperwork. Selling what you own is a tax event. Keep the two apart.
The conversation you are dreading
You do not owe anyone a breakup meeting. The transfer request does the notifying.
A short note is kind, and it is enough: thank you, I have decided to move my accounts, please do not sell anything. That is the whole message.
If the dread is what has kept you in place, write your rule down while you are calm and follow it later. That is The Pre-Decision, and it was built for moments like this.
Related questions: whether to leave your advisor, should I roll my 401(k) into an IRA, how to check if your advisor is a fiduciary and how much a financial advisor costs.
One question for this week: is it the tax you are afraid of, or the conversation? Only one of them is real.
As always, if you want to talk any of this through, the door is open. Genti