When opening a new investing account, it often seems easier just to stick with your existing online broker — even if you’re dissatisfied with the fees or customer service. Many investors believe that transferring brokers is difficult. But it doesn’t have to be. Here’s how to transfer your account without tearing your hair out in the process.
In some cases, stock brokers charge transfer fees when you decide to leave them behind. But don’t let this stop you. The truth is, you might be better off paying that one-time fee if, as a result, you end up with a brokerage that better suits your needs (and costs less over time).
As you transfer, though, there are some things to keep in mind. After all, you’re transferring your (hopefully) valuable securities.
In most cases, you’ll have to pay an exit fee before leaving. However, as you’ll see, most brokers will reimburse that fee as a bonus for transferring to their service.
What to Do Before Transferring
Before you initiate a transfer between brokers, it’s a good idea to contact the new broker to discuss your situation — especially if there are potentially complicated factors.
Find out what the individual broker’s process is, and discuss the assets that you plan to move. A few minutes on the phone with the new broker can help ensure that everything goes as smoothly as possible.
Retrieve/record the transaction history from your old broker. Make a record of all the securities you own before the transfer occurs.
Per a ruling implemented in 2011, the history will be passed onto the new broker and will not be lost. However, you should have your own copy just in case. If you don’t have this information and end up selling any securities, you’ll likely have a bit of a headache at tax time. It also becomes harder to know the profit/loss of an individual security.
Account Transfer Fees
Here’s a list of brokers and their respective exit fees. Some stock brokers charge differently for a partial transfer, and some charge for closing out an account.
|Firm||Full Transfer Fee||Partial Transfer Fee||Closure Fee|
Broker Reimbursement Promotions
Most stock brokers charge a fee when you leave the brokerage. If this is the case, your new discount stock broker might reimburse you for that amount.
Here’s a list of some brokers that currently will reimburse your fee or offer other incentives for signing up:
|TD Ameritrade||Up to $100 bonus for an account of $25,000 or more, and up to $600 bonus for an account of $250,000 or more|
|E*TRADE||Up to $200 bonus for an account of $25,000, and up to $2,500 bonus for an account of $1 million or more|
|Firstrade||Switch and get up to $200 cash back plus up to $100 bonus when you open a new account, or up to $1,000 bonus when you deposit at least $5,000|
|Wealthfront||Get up to $15,000 managed for free when you transfer at least $500 from an existing 401(k) or IRA|
What Can You Expect as a Customer?
For most investors, the transfer process moves smoothly and can be done automatically, with the help of a special clearing house. The Automated Customer Account Transfer Service (ACATS) is operated by the National Securities Clearing Corporation, and it’s normally possible for your cash, stocks, and bonds, as well as certain listed options, to transfer easily (at least from an investor standpoint).
In order to transfer your account from one broker to another, you first need to fill out a Transfer Initiation Form. This form is then sent to your new broker. In many cases, it’s possible to fill out one of these forms, online, with the new broker.
This makes the process a little easier on you. Once you have submitted your Transfer Initiation Form, your new broker (“receiving firm”) contacts the old broker (“delivering firm”) through ACATS and begins the process.
Fill out your form carefully and accurately. If information on your form doesn’t match the information that your old broker has on the account, the request to transfer the account can be denied.
However, if everything is in order (and you might be required to validate the form before it is approved), your old broker will send a list of assets that you have to the new broker. Your new broker then decides if it wants the account. It’s possible that the new broker will reject your account.
Before trying to initiate the transfer, check with the policies of the new broker. In some cases, the quality of securities may be in question (especially if they’re supporting a margin loan), or there may be an issue with minimum requirements.
Specific Steps to Transfering Brokerage Accounts
Transferring your account from one broker to another can be incredibly easy if you follow these simple steps:
Step 1: Let the new broker handle the transfer for you.
Transferring an investment account from one broker to another is a specialized process, so you’re better off letting the brokerage firms work it out between themselves. It’s best to have the new broker affect the transfer, since your old broker will have little incentive to handle an outgoing account. The new broker will have you sign an authorization to initiate the process, then contact your old broker and handle the transfer directly. Be ready to supply a copy of your most recent statement from the old broker, as it will make the process easier for the new broker.
Step 2: Special consideration for retirement accounts.
There are different ways you can transfer funds between brokers for retirement accounts. But the best way is to have the transfer completed directly from one broker to another, rather than first having the funds transferred to you personally. A broker-to-broker transfer of retirement accounts eliminates the possibility of the old broker withholding 20% of the account value for taxes, as well as the possibility that you might miss the transfer time limit (60 days), after which the transfer to you personally would automatically be considered a fully taxable distribution from your account.
Step 3: Handle all-cash vs. individual securities.
The quickest, easiest, cleanest way to transfer from one broker to another happens when the old account is all-cash. This would require liquidating any investment positions before you make the transfer. If you are transferring investment securities, the process will take longer — usually several days.
Step 4: Be prepared to lose control of your investments during the transfer.
If you’re transferring a portfolio of securities, you will not have access to your portfolio during the time it takes to transfer out from one broker to another. Make sure you’re comfortable with the positions that you hold in your old account before beginning the transfer process to the new one. Assume it will take at least five business days, and plan accordingly.
Step 5: Be sure you are transferring equivalent accounts.
If you are transferring an account you hold individually into a new account that will also be held individually, the process is simple. But if you’re going to transfer a joint account into an individual account, additional paperwork will be required, and probably additional time as well. if you want to change the setup of the account, it might be better to make the transfer first, then make the account change. That will create two less complicated changes, rather than one big, messy one.
Step 6: Make sure you carefully review the results of the transfer.
The easiest way to do this is to compare the most recent statement from your old broker to the initial statement from the new broker. Better yet, get a printout of your account with the old broker just before the transfer takes place. You want to make sure that all securities and cash balances have been included, that nothing has been unintentionally reshuffled during the transfer process, and that no unexpected fees have been charged.
Step 7: Watch out for account close-out fees on your old account.
Most brokers have some sort of exit fee in the event that you close out your account. Depending on the broker, it could be as much as $150. This can be an unexpected surprise if you don’t remember that the fee exists. And that’s highly likely, since it’s one of those fees that most investors don’t pay attention to in the normal course of business.
But as mentioned above, there are ways to get around the close-out fee and be reimbursed for the brokerage transfer fees.
How Long Does an Brokerage Transfer Take?
Normally, it takes about six business days to transfer an account: About three business days for the old broker to validate the request, and another three business days to transfer your assets to the new broker.
Realize, though, that it can take longer in some cases. If you are transferring an account with a custodian, such as an IRA or an account on behalf of a minor child, it can take longer because the whole process includes another party.
A Special Consideration When Transferring Taxable Brokerage Accounts
When you transfer securities from one taxable investment account to another, you’re transferring not only the securities themselves but the data related to those investments as well.
A vitally important piece of that data is the cost basis of the securities that you’re transferring. Even though it’s part of the transfer process, you should also compile this information yourself.
The new broker should transfer the cost basis of the transferred securities, but do this just in case there’s an error or missing information.
The idea is to have your cost basis on each of the securities that you transfer, that way you will have it available when it comes time to report capital transactions on your income tax return.
As a rule, the new brokerage firm may not have the cost basis of a security sold, because that security was purchased through another broker. It will be up to you — not the new broker — to come up with that information for income tax purposes. After all, it was you, and not the new broker, who had the client relationship with the previous broker.
You’ll want to perform an accounts transfer well in advance of filing your income taxes. It can be a lengthy process, particularly if any securities were purchased several years ago.
Not having the information available when filing your return will almost guarantee that you will need to extend your return to give you the months that you will need to compile the cost basis information.