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Should I Switch Financial Advisers?

Question: I’m looking for objective advice on the best way to evaluate a potential money manager as compared to the manager I currently have. My portfolio is managed by a boutique firm now, and I pay 75 basis points annually as a management fee.  All in all, I like them as they are very responsive to my questions and needs, and most importantly, I think they are doing a pretty good job.

Recently, I was approached by a financial adviser who is extremely hungry for my business.  The company I work for does a lot of business with this firm, and the potential new manager is willing to match the fee I’m paying now.  While there is no denying that this bigger firm has a lot more resources, I find myself in a quandary about how to objectively evaluate this offer.

Given the level of relationship the new firm has with me and the company I work for, I would think there is an inherent desire not to screw things up.  That being said, I have been with my current manager for about 5 years, I’m on a first name basis with him, and I feel comfortable calling him with just about any concern.  His answers are generally honest and very pragmatic. How should I deal with this?

–Scott from Long Island

ANSWER: The fact that you have a business relationship with the firm that’s wooing you may actually be reason to hesitate before moving your personal money, says John Jaenisch, an executive director at Sheffield Haworth, an executive search firm focused on the financial services industry. Many people feel more comfortable having business and personal relationships with separate firms, Jaenisch says. You may see no problem doubling up that relationship, but it’s also worth thinking through the consequences.

Keep in mind, too, that it’ll cost money to move your money, Jaenisch says. If the move ends up involving selling out positions, you’ll pay commissions twice. Simply moving the money to the care of a new manager can also cost up to 1% of the value of your portfolio in administrative costs. And while this new firm is willing to cut its fees to get your business, be wary of offers to make exceptions — things could change.

That said, there’s nothing wrong with carefully considering a switch. This potential new manager should be prepared to draw up a proposal for how he or she would position your portfolio, given your age and family situation. Compare this model portfolio to what you’ve got now and see if it looks like a significant improvement — and find out whether you’ll get the same level of personal service at the new firm as you do now. Ask about the potential new manager’s background and experience and where their expertise lies. Most people in the business have certain asset classes or types of clients they’re best at working with, Jaenisch says.

Remember, switching managers isn’t easy. “You want to make sure you’re going to get enhanced service and performance,” Jaenisch says.

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