diff --git a/entityreference.install b/entityreference.install
index cc7bce5..c06fcbc 100644
--- a/entityreference.install
+++ b/entityreference.install
@@ -163,3 +163,38 @@ function entityreference_update_7002() {
     ));
   }
 }
+
+/**
+ * Move selection handler config to field instance settings.
+ */
+function entityreference_update_7003() {
+  // Enable ctools.
+  if (!module_enable(array('ctools'))) {
+    throw new DrupalUpdateException('This version of Entity Reference requires ctools, but it could not be enabled.');
+  }
+
+  // Get the list of fields of type 'entityreference'.
+  foreach (field_info_fields() as $field_name => $field) {
+    if ($field['type'] == 'entityreference') {
+      // Update the instances configuration.
+      foreach ($field['bundles'] as $entity_type => $bundles) {
+        foreach ($bundles as $bundle) {
+          $instance = field_info_instance($entity_type, $field_name, $bundle);
+          $updated = FALSE;
+          if (isset($field['settings']['handler']) && empty($instance['settings']['handler'])) {
+            $instance['settings']['handler'] = $field['settings']['handler'];
+            $updated = TRUE;
+          }
+          $instance['settings']['handler_settings'] = $field['settings']['handler_settings'];
+          if (isset($field['settings']['handler_settings']) && empty($instance['settings']['handler_settings'])) {
+            $instance['settings']['handler_settings'] = $field['settings']['handler_settings'];
+            $updated = TRUE;
+          }
+          if ($updated) {
+            field_update_instance($instance);
+          }
+        }
+      }
+    }
+  }
+}