QUESTION:
My financial planner has changed companies three times since I have been with him. Each time he said I should move my money to his new company. Every company was huge and well known, should I worry about these frequent moves? Why does he move? Why do I have to move ?
ANSWER:
The reason he moves and wants you to follow is because he probably got a better deal for himself at another company. He believes he will make more money with huge-Company B than mega-Company A, so he changes companies. Your planner is a salesman.
The reason he asks you to move as well is so his new company will have you as a client. Your investments are moved to Company B so to include your portfolio "under management" and receive those internal management fees every year. Your planner is generally compensated for this either in direct sales commissions when you make the move, in a portion of the management fee the parent company takes every year (his percentage) or perhaps both. So he has a personal financial reason to move your entire portfolio from one company to another.
The Good Reason
He probably told you some reason for the move you didn’t quite understand, or care about. “I have a lot more flexibility with mega company B”, or “Mega company B offers a lot more for you.” Nonsense. There is more money for him if your portfolio stays with him at his new company than when it doesn’t. To paraphrase J.P. Morgan: “A man always has two reasons for doing anything: a good reason and the real reason”.
Usually there isn't but certainly there could be a legitimate reason. Maybe the company came under new management, or was sold in a huge corporate merger. In these cases, care should be taken to minimize tax impact on thoes sales and reinvestments. Often this is not the case, the vast majority of these moves come when a salesman obtains for himself a better deal somewhere else and he drags you along with him.
When investors change investment companies on the advice of their financial salesman, a big tax bill often results because the investment holdings were sold, and then re-invested into the new company into similar products. Now why would you want to do that to yourself? You wouldn’t have any reason.
If you move your taxable portfolio from one company to another, chances are pretty good there will be some tax pain, and you should know what that is before you make the move, so plan accordingly, and make taxable sales and repositioning when and how they will least hurt you.
The Real Reason
More money for him.