A common source of frustration is the amount of time a transfer takes to be completed. Even with all the technology we have today, many transfers continue to be a manual process -- despite being touted as “electronic”.
While the process may seem long, and even a bit intimidating, you shouldn’t let a little paperwork and lack of familiarity stand in the way of leaving an unhappy brokerage relationship.
If you’ve decided to move on from your current broker, here are a few tips to make the transfer process as painless as possible.
Prepare for the Transfer
Before you initiate the transfer process, it’s a good idea to have a conversation with your new advisor to discuss your situation -- particularly if there are any complicated factors involved.
This discussion will allow you to define the assets that you plan to move, find out what the transfer process is, and more importantly, get on the same page with your new advisor to help make the process run as smoothly as possible.
This process if filled with industry jargon, so I'll try to explain as we go. For most accounts, the automated customer-account transfer, or ACATS process can be initiated by your new advisor.
Think about it this way, the receiving firm has a financial interest in having the transfer done quickly and without error. As a result, they will process the paperwork that initiates the transfer without you having to speak with anyone at the old firm. Typically all you will have to do is provide them written authority to do so.
As you work with your new firm to prepare for the transfer, you will open new accounts to transfer your existing ones into. A word of caution when it comes to establishing your new accounts: be sure that the account name(s) are exactly like the account that you are transferring over.
For example, if you are transferring a joint account and the styling includes your middle initial, then the new account should reflect the same. Essentially you are trying to create a mirror image of your old account. This alone should help you avoid many of the common reasons for transfer delays.
Now, if you decide that you want to change the setup of the account, you might be better off making the transfer first, then making the account change. Ideally, this will allow you to make two less complicated changes, rather than one unnecessarily difficult one.
Set Your Expectations
Despite your very best intentions, you may experience some frustration throughout the transfer process. While this is just my opinion, I firmly believe that brokerages, insurance companies, and other such firms make it as difficult as possible to transfer assets away so they can hold your money longer. This seems anti-fiduciary to me, but it’s totally out of my control. Again, that's just opinion, and we know how much a free one is worth!
As I step down from my soapbox, here’s a quick study of what you can expect during the transfer process, broken down by asset type.
Transferring cash from one brokerage to another through check or wire transfer is the easiest method of moving your portfolio. One word of caution, though. Due to the simplicity of transferring cash, some brokers may recommend liquidating all of your current positions and sending a wire transfer to their firm.
As straightforward a solution as this may seem, doing so could result in some unintended tax consequences -- not to mention time delays that result from waiting for positions to settle after closing them. Your new advisor should inform you of these, so if he doesn't then be sure to ask.
Transferring Assets - ACAT
If the process is running smoothly, you can expect to wait anywhere from 5 - 7 days for the ACAT process to be completed once the paperwork is received. You can move assets in-kind this way. That means that you can move your mutual fund, ETF, stock or bond intact from one account to another without any tax consequences. You are just changing the firm holding the assets for you.
Delays usually arise before this timeline even begins. If the transfer form is not filled out correctly, if account titles or social security numbers do not match, or if names do not match, your transfer will be delayed. Also, you normally need to include the most recent statement from your old account.
Setbacks may occur when the old broker requires any additional paperwork, such as a Medallion Guarantee, or Signature Guarantee stamp. This is more than a notary signature - it's where an institution takes on the liability of making sure the signature is correct.
While the process is mostly automated, keep in mind that once the transfer is initiated, you will have limited access to your funds, so it’s best to clear these issues up quickly.
Transferring Weird Things - Non-ACAT
While moving cash or in-kind assets from one brokerage firm to another is pretty straight-forward, there are instances where transfers of certain assets are more difficult -- or worse, not permissible at all.
This situation may occur when an investment is illiquid, is not traded on a public exchange (ex: Non-traded REITs) or is a proprietary fund that belongs only the the issuing firm. In situations like these, investors are generally resigned to one of two choices: process a partial transfer, or liquidate the asset(s) that cannot be transferred. Since neither option is as common as a regular transfer, the process is done manually which can take anywhere from 4 - 6 weeks to be completed.
Wait, You’re Charging What?
One of the commonly overlooked elements of an ACAT process is the fact that your current broker can charge you a fee for initiating an account transfer. Depending on the broker, it may be as much as $150, which could be quite surprising if you have no idea the fee exists.
But again, the new firm wants your business so don’t hesitate to ask if this is a fee they would be willing to cover on your behalf.
As with anything, be prepared for the complexities of the task ahead of you before pulling the trigger. That means, checking with your new advisor before beginning the transfer process to set expectations and be sure to dot your i’s and cross your t’s. Additionally, feel free to continue checking-in periodically with your new advisor until your money is exactly where you want it to be. Trust me, while it may seem burdensome at first, your new advisor is thrilled to have your business and a good advisor will be updating you on the status of your transfer throughout the process.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.