How to make the transition from your financial advisor to a DIY investor easy.

By Bill Jackson December 20, 2023 9 mins read 91 Views

By Ryan Kelly, Guest Writer

Do you want to fire your financial advisor and become a DIY investor, but you keep putting it off? If so, you’re not alone. It’s common for those who want to make this transition to feel stuck.

How to make the transition from your financial advisor to a DIY investor easy.

On the one hand, you’re convinced that you can be an effective DIY investor, and you no longer believe it’s worth it to keep paying high fees. On the other hand, you may feel overwhelmed with the administrative tasks that will be involved with the process—especially if you are extremely busy with work and family commitments. You may feel worried that you will make a mistake, or perhaps your financial advisor is a friend or family member and it feels awkward to make the change.

These concerns are valid, but here are six steps to make a smooth transition.

#1 Set Aside Time to Learn the Basics of Financial Planning and Index Fund Investing

You don’t need a college degree in finance or accounting to become an effective DIY investor. You don’t need to devote hundreds of hours to personal study. This stuff is not that complicated. But you do need to have a foundational understanding of financial planning and index fund investing.

I’d suggest two options to accomplish this objective. The first option is to buy the White Coat Investor’s Fire Your Financial Advisor course, a terrific course. You’ll learn about important financial planning topics (life insurance, disability insurance, emergency funds, student loan planning, home purchase planning, etc.) and investing topics (retirement accounts, asset allocation, picking investments, etc.). You’ll walk away with the foundational knowledge to become an effective DIY Investor.

The second option I would recommend is to read the following two books: Financial Boot Camp by Dr. Jim Dahle, and The Elements of Investing by Charles Ellis.

Financial Boot Camp provides a concise and informative overview of life insurance, disability insurance, retirement accounts, estate planning, retirement planning, investing, and more. It is not necessarily a deep dive into each topic, but it does provide a very helpful overview. The Elements of Investing clearly outlines important investing topics and the logic of index fund investing. It should only take between 10-15 hours to carefully read the two books. As with the Fire Your Financial Advisor course, you’ll walk away with the foundational knowledge to become an effective DIY investor.

#2 Practice DIY Investing by Opening a Taxable Brokerage Account

It’s important to become familiar with the process of opening, investing, and maintaining an investment account. You can practice this by opening a taxable brokerage account at one of the four major brokerage firms: Vanguard, Fidelity, Charles Schwab, or E-Trade. After opening the account, you can contribute a small amount—even $200 is sufficient to practice DIY investing.

After you fund the account, go ahead and place a trade in the account. You could buy something like the Vanguard Total Stock Market ETF (ticker symbol VTI) or the iShares Total Stock Market ETF (ticker symbol ITOT). ETFs can be purchased commission-free at any of the major brokerage firms. Since you will only have a small amount in the account, you can practice without fearing a costly mistake.

This simple exercise will help you become familiar and confident with the process of managing your accounts. You’ll find it doesn’t take long to become familiar with using the brokerage firm’s websites.

To take your practice one step further, you could transfer the account to another brokerage firm. Since becoming a DIY investor may require you to transfer accounts to a new brokerage firm, this exercise will help you become familiar with the transfer process.

For example, if your taxable brokerage account is at E-Trade, you could open a taxable brokerage account at Fidelity and transfer the E-Trade account to the Fidelity account. The process can be completed online, or you can call either brokerage firm to initiate the transfer.

More information here:

10 Ways to Know You Are Competent to DIY Your Investments

#3 Consider Paying a One-Time Fee to a Fee-Only Financial Advisor for Some Personalized Advice

Before you pull the trigger on initiating the transition, it can be helpful to pay a one-time fee to a fee-only financial advisor for some personalized financial advice. This is not an absolute necessity, and it may sound counterintuitive to hire a financial advisor to help you fire a financial advisor.

But if you find the right financial advisor, it can be well worth it. The one-time financial advisor can help you write a financial plan, advise on the tax consequences of moving away from high-cost investments in a taxable brokerage account, help you write an Investment Policy Statement to guide you on your journey as a DIY investor, and help you understand how to avoid hiccups and mistakes as you make the transition.

The key is to find a financial advisor who has experience assisting DIY investors and who is willing to offer you as-needed advice for a one-time fee.

One way to find such an advisor is by scanning through the list of recommended financial advisors on The White Coat Investor website. As you review the advertising listings, look for words or phrases such as “DIY” or “one-time” or “we charge by the hour” or “we provide as-needed advice.” These are indications that these advisors have experience assisting DIY investors and that they are willing to work with you on a one-time basis.

Before hiring the advisor, schedule a free consultation. Explain your objectives and ask for a quote for how much the advice will cost. As you consider the potential cost for the one-time project, compare it to the cost you would pay over the next 5-10 years if you keep your full-time financial advisor.

For example, let’s assume your current financial advisor is managing $1 million of your assets, the total fees (AUM fees plus the cost of the underlying investments) are 1.2% per year, you are contributing $40,000 per year to the accounts, and you are expecting the accounts to generate a 7% per year gross return going forward. In that case, you are on track to pay $199,183 in total fees over the next 10 years.

Let’s now assume that the quote from the one-time financial advisor is a one-time fee of $2,000. That’s 99% less than what you’re on track to pay your current advisor over the next 10 years. As long as you believe the one-time financial advisor will provide you with valuable advice, it’s probably worth paying the one-time fee.

#4 If You Need to Transfer Accounts, Open the Necessary Accounts at the New Brokerage Firm

Determine if firing your financial advisor will require you to transfer accounts to a new brokerage firm. If your accounts are at Charles Schwab or Fidelity, then there’s no need to transfer the accounts to a different brokerage firm. These firms allow you to self-manage your accounts and provide great resources to help you do so. All that will be required is to remove your financial advisor’s trading authorization on the accounts and to turn them into self-managed accounts. You can do this by calling the main customer service phone number and requesting the change (however, it’s probably a good idea to wait until step #5 before actually doing so).

If your accounts are at a different brokerage firm (Edward Jones, LPL, Ameriprise, Morgan Stanley, etc.), then you’ll likely want to transfer the accounts to a different brokerage firm. This is either because 1) these firms don’t offer self-directed investing services, 2) the self-directed investing arm of their business is lacking in some way, or 3) the brokerage firm will likely give you too much pushback if you make the request.

In that case, you can transfer the accounts to either Fidelity, Vanguard, or Charles Schwab. I believe Fidelity has a slight edge in terms of customer service among the major brokerage firms, and this will come in especially handy when transferring accounts. Fidelity offers commission-free trading of low-cost index mutual funds and low-cost ETFs.

Before you initiate the transfer process, you’ll want to open the necessary accounts at the brokerage firm you have selected. For example, if your financial advisor is currently managing a taxable brokerage account and a Roth IRA, you’ll want to open a taxable brokerage account and a Roth IRA at the new brokerage firm. With the accounts opened, you are ready to initiate the transfer process.

More information here:

Are Financial Advisors Worth It?

#5 Break Up with Your Financial Advisor

The next step is to make it official and let your financial advisor know that you are moving in a different direction by sending a kind, respectful, and brief email. Since you have already completed the first four steps, you are now prepared to initiate the process.

From my experience and observation, this will not be as big of a deal as you think it will be. Sending an email to your financial advisor is the best way to go, and it has advantages vs. a phone call or Zoom meeting.

Here’s a basic outline you can refer to as you write the email:

Communicate that you have decided to self-manage your accounts going forward.
Express gratitude for the assistance and help your financial advisor has offered to you in the past.
Ask the advisor if there is anything you need to provide to them to make the transition.

It’s important to use brevity and to communicate in a kind and respectful tone. If you do so, you’ll likely find that the advisor will reciprocate the same back to you.

#6 Use Free Resources Available to Help with the Transfer of Accounts

fire your financial advisor

If you need to transfer accounts to a new brokerage firm, identify and use the resources that are available to you.

For example, I recently worked with a client who ended her relationship with her full-time financial advisor who was charging her a 1% per year AUM fee to manage a large amount of assets. She decided to transfer her accounts to Fidelity and self-manage her investments using a simple portfolio of low-cost index funds. To assist with the transfer process, I recommended that she reach out to Fidelity and ask for a specific customer service representative to be her point of contact during the process. Fidelity connected her with a representative who works at a local Fidelity branch office that’s only a few miles from her home. She found it to be very helpful to have a specific contact person to reach out to with questions, as opposed to calling the main customer service phone number each time she had a question.

If any hiccups or problems arise during the process, you can consider using the WCI Facebook group to seek advice and counsel from others. If you do so, be careful not to share any sensitive information. If you write without sharing sensitive details, the WCI Facebook Group can be a valuable source of advice and guidance.

Following these six steps will involve a fair amount of work, and it’s inevitable that you’ll experience at least one hiccup or problem as you go through the process. But these six steps will minimize any hiccups or problems, and they will help to make the transition as smooth as possible.

Have you ever broken up with your financial advisor? Was it difficult? How did the process go? Are you happy with the result of the breakup? Comment below!

[Ryan Kelly, CFP, is the president of RFK Capital Management, a financial advisory firm that specializes in supporting DIY investors. RFK Capital Management is a paid advertiser and a WCI Recommended Financial Advisors partner. However, this is not a sponsored post. This article was submitted and approved according to our Guest Post Policy.]

The post Firing Your Financial Advisor and Becoming a DIY Investor — 6 Steps to Make It a Smooth Transition appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.

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By: Lauren O'Brien
Title: Firing Your Financial Advisor and Becoming a DIY Investor — 6 Steps to Make It a Smooth Transition
Sourced From: www.whitecoatinvestor.com/firing-your-financial-advisor-and-diy/
Published Date: Tue, 19 Dec 2023 07:30:43 +0000