Rob Carrick: The investment product that can complicate a divorce with your adviser

Rob Carrick: The investment product that can complicate a divorce with your adviser

A bit of good news for investors unhappy with their adviser: Breaking up is easy to do.

Just find a new advisory firm or a DIY outfit, complete the account transfer forms and wait for your assets to migrate from the old firm to the new. Your old firm may take its time completing your request, and it may apply a “transfer-out” fee of $150 or so (ask your new firm to cover it). With one notable exception, that’s all there is to the account transfer.

That exception came up in a recent e-mail from a reader who is so done with his adviser. “I’m not happy with the fees I’m paying or with his communication style,” he wrote. The complication is that one of this reader’s accounts is held in a proprietary product — a unified management account.

These accounts can hold a variety of common and easy to transfer investments – stocks, exchange-traded funds and mutual funds. Things get more complicated with other potential holdings, including hedge funds, pooled funds and in-house investment funds. These may not be transferable to an account at another investment firm, which means they would have to be sold first.

Therein lies a tax issue in a non-registered account. Capital gains could be triggered by a sale and a hefty tax bill created. Selling in taxable accounts is ideally done strategically, not simply to free yourself from the clutches of a disappointing adviser.

The best way to deal with unified management accounts and similar products is to take a pass on including any investments that aren’t publicly traded. More exotic products are used in most cases because of the allure of exclusivity. The pitch is that you’re getting something others don’t know about and, even if they did, couldn’t buy. The reality is that these exclusive products are often over-priced and no better in terms of risk and reward than simpler, cheaper publicly traded alternatives.

It sets a bad tone if you insist your adviser manage your account in a way that allows you to make a quick and easy escape, should the need arise. Fortunately, there are other good reasons to pass on proprietary investing products and accounts.

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Published at Tue, 22 Dec 2020 16:21:33 +0000