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The Short Answer

What to Do When Your Financial Advisor Retires

Whether you accept the dealer's replacement is up to you.

Everyone retires, even your financial advisor. As more and more baby boomer advisors head off to their golden years, their clients will learn--or at least should learn by letter or phone call--that someone new has been assigned their accounts.

The qualifications of who will get your account will vary from firm to firm, and even from branch to branch in the same firm. In some cases your new advisor will be someone who worked for your former advisor and who has taken over what is called the book of business from that person. In other cases the dealer or agency or office branch manager will assign your account to someone in the office who may be relatively new in the business.

For others it could be someone you have never met who bought the book of business. That often happens within firms where individual representatives "own" the clients, which is not the situation with most large dealers. The business model of some smaller dealers is to provide minimal support to the advisors who work in their branches, offering little more than administration and head office compliance services. Typically, advisors in this type of operation rent their own premises and are responsible for paying their own staff.

This type of dealer considers clients to belong to the advisor, so if an advisor decides to retire he or she can sell the book of business to anyone, subject to the buyer being registered with the SEC or, in some cases, their state. If the buyer works at a different firm from where the seller was working, he or she will want to move your account. The price paid for the book will be some multiple of the revenues it generates.

If you find yourself in this boat, make sure you completely understand what changes you can expect before agreeing to a move, including who will be providing your statements, and confirm that nothing of yours gets lost in the shuffle.

Typically, dealers wanting to sell their books of business or to buy books of business let others in the industry know their intentions. However an Internet search for "mutual fund books of business" turns up ads from people looking to buy on craigslist.com and on kijiji.com as well as on industry forums.

The Transition
When someone new takes over your account, that person should call you and schedule a meeting to review with you 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.

You don't have to make a decision on the spot, and if you have even the slightest concerns ask for the recommendations in writing with the reasons behind them so you can review them at your leisure and ask any questions that stem from your review.

Your advisor has an obligation to explain both the benefits and the risks to you. To put it another way, the advisor's job is to make recommendations that are suitable for you. Your job is to accept or reject the recommendations. To do that, you have to understand what is being presented.

Don't be embarrassed if you don't understand the answers. Just continue to ask questions. If you can't get an explanation with which you are comfortable, simply say no.

If you feel that the new advisor is impatient or doesn't have enough experience or knowledge, bring your concerns to the branch manager and request that someone else be assigned the account. If you sense any reluctance, seek second opinions from other firms.

Most dealers will be very happy to comply with a request for a second opinion, especially if you have significant assets or the potential to grow your assets, because they will be compensated if you bring your account over to them, even if you don't make any purchases or switch existing holdings.

Mutual fund management companies and insurance companies pay what are called trailer commissions on mutual funds and segregated funds. These are not necessarily paid to the dealer through whom you bought the specific funds. They are paid to the dealer with whom you have your account. So if you switch from one dealer to another, the trailers move with you. If you have $100,000 of equity funds, the trailer will generally be 0.5% to 1.0% of market value, depending on whether you bought the funds on a commission (front load) or redemption fee (back load) basis.

Those percentages may not seem like a lot, but if one client is upset, odds are there are a couple of dozen other clients in the same boat, so the dollar value involved can be significant for a dealer.

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