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How to Switch Brokers and Successfully Move Investments

US News & World Report - Money 8/6/2021 Paulina Likos
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The brokerage you use is crucial to your long-term investment success. So if you suspect that your existing provider is not serving you, switching brokers should be top of mind.

Since there are many brokerage options, you want to make sure you have the one that suits your investment goals. If you're apprehensive about your current brokerage, whether for its services, products or investment strategy, know that there is fierce competition in the space and other firms are interested in your business.

Making the switch may seem difficult. But once you've done your research on which new brokerage is right for you, know what questions to ask your existing firm and how to evaluate a new brokerage, you are well on your way to making the change.

Here is what to know about switching brokers:

  • Is it time to switch brokers?
  • How to transfer a brokerage account.
  • Mistakes to avoid.

Is It Time to Switch Brokers?

One of the main reasons people switch brokerages is the fees are too high. Fees may seem like a small expense at first glance, but when added up over time, their cost can eat at your returns. For this reason, you may want to shop around for another brokerage that offers more competitive fees.

Christian Cyr, president and chief investment officer at Cyr Financial, says now is a great time for investors to assess their broker situation.

"In the last few years, the industry has changed dramatically, leading to fee compression, additional features and robust technology offerings," he says.

If you find another brokerage that charges less for the same service, it's a no-brainer to want to make the switch.

But if you're working with a financial advisor, it's important to examine your total relationship. Brie Williams, head of practice management at State Street Global Advisors, says that for many investors, the client-advisor relationship is not just about investment performance.

"Lackluster performance, high fees (or) commissions or limited transparency with costs, inconsistent communication, minimal client service, and cookie-cutter advice are among the reasons to turn the page on your current advisory relationship," she says.

You have to understand what you want out of the relationship. Williams says the first question you need to ask yourself is, "What type of help am I looking for?"

There is also a possibility that you have outgrown your current brokerage. Many services are catered to different customers with varying levels of experience in the markets. If you started out with a broker that offers standard services, tools and resources that you have exhausted and are now seeking more versatility, this could be another reason to jump ship. If you are at a stage where you want to find a broker that gives you greater access to research tools so you can make better-informed decisions, maybe it's time to ditch your broker.

Likewise, if your broker's tools are outdated, you may not be getting the most out of your investing experience. Technology has enabled investors to simplify trading through easy-to-use interfaces at a fraction of the cost. If this is something you're interested in but aren't taking advantage of, research the options you have and compare them with your existing broker to see which service best suits your needs.

How to Transfer Brokerage Accounts

Once you've made the decision to swap brokerage accounts, be sure you know how to make the move properly.

Here are the steps to take when switching brokers:

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  1. Keep a record of your statements.
  2. Be aware of transfer fees.
  3. Complete the transfer initiation form.
  4. Initiate the transfer.
  5. Complete cash transfers.
  6. Ask questions.
  7. Verify that your new account is in order.

1. Keep a record of your statements. Before you start to transfer your assets, keep financial statements from your existing brokerage for your records. You may need to reference these documents to make sure all your assets were transferred and for future tax purposes.

"The easiest way to ensure a smooth transfer is to prepare ahead of time, making sure that you have taken all the necessary steps to open the proper accounts with your new firm and that the account types and account titles match up with your old firm," says Eddie Guediguian, client development manager at M1 Finance.

Referencing these account statements can help avoid delays and ensure that no snags, such as unsettled trades or debit balances, will hold up the process, he says.

2. Be aware of transfer fees. An automated customer account transfer, or ACAT, fee is a charge incurred by the investor from the existing broker when the investor decides to transfer an account to a new brokerage. You may not need to incur this expense because the new brokerage may pay the transfer costs. Some brokerages offer this as an enticement to get your business.

You may also have to consider paying a closing fee. Contacting your existing and new brokerages to ask about transfer fees is the best way to understand the expenses associated with transfers and the potential for reimbursement.

3. Complete the transfer initiation form (TIF). To start the transfer process, investors need to complete the transfer initiation form for the new brokerage account. Usually, the TIF asks you to fill out your account numbers, Social Security number, your existing and new brokerage information, and other details. Be sure to fill out this form accurately because any errors can delay the transfer process.

"It is important to work with the right paperwork and to ensure completeness and accuracy of your information to avoid unnecessary fees, unintended tax consequences (or) any process delays," Williams says.

Once the TIF is completed, the new brokerage firm reaches out to the old one to start the transferring of financial assets. This automated process can take a week or more to complete, but depending on the broker-dealer, the time frame can vary.

4. Initiate the transfer. A fast and easy way to transfer your assets is through an in-kind transfer. This requires you to move your old account as-is to a new one that is similar.

"The first and most important thing that you want to ensure is that you are transferring like-type accounts," says Sean Burke, vice president and director of institutional money management at Stuart Estate Planning Wealth Advisors in Coconut Creek, Florida. For example, you'll want to move a traditional individual retirement account to another traditional IRA or transfer a Roth IRA to a Roth IRA. This will ensure that there are no unintended tax consequences, Burke says.

When completing this transfer, you won't buy or sell anything new or raise any additional tax implications. In this exchange, the new brokerage will receive your investments from your old brokerage account with the market value on the day of transfer.

You can transfer investments such as stocks, bonds, exchange-traded funds, mutual funds, commodities and many others.

5. Complete cash transfers. If you're transferring cash from one brokerage account to another, the process is a lot simpler, and the transfer can happen quicker. Once you initiate the cash transfer, the funds should be available in your new account within days. If you choose to sell your investments and transfer your cash assets, know that you may incur a capital gains tax.

6. Ask questions. To ensure that the transfer is smooth, it could help to reach out to the new brokerage to make sure you are aware of what the transfer process entails. Ask questions regarding the types of assets you want to transfer and the time it may take for the transfer to complete. You can also ask what could delay the account transfer process and what steps you can take to prevent that.

7. Verify that your new account is in order. Once the transfer is complete, make sure all your assets have been transferred. Sign into your new brokerage account and have your previously saved statements from your old brokerage firm available to double-check that all your investments were switched over successfully.

Mistakes to Avoid

When you're making a broker switch, mistakes to avoid include neglecting to complete an in-kind transfer and making trades while the transfer is in process.

Another common issue that can delay the transfer of your assets is if your new brokerage doesn't accept certain securities from your old brokerage. For the most part, securities like stocks, bonds, options and ETFs are transferrable. But if there are particular investments specific to your existing firm, this could pose transfer issues at your new brokerage.

An expert tip: "Before initiating a transfer, make sure your new broker has an agreement in place to accept all of your holdings, especially mutual funds," Cyr says.

If you come to find that your new broker does not accept some of your holdings, Cyr says, "you must liquidate the holding at the old firm before the transfer takes place."

Investors should try to avoid liquidating their investments prior to transferring their assets with their new brokerage and transfer investments in-kind instead. Daniel Stein, vice president and branch manager at Charles Schwab in Bethesda, Maryland, says selling your assets is a mistake that could have large tax implications.

"If an investor has gains in their investments, and they liquidate those investments simply to change firms, they will have to pay capital gains taxes, even if they repurchase the same securities," he says.

For investors who feel they are not getting the proper value with their current brokerage, Stein says, transferring your assets rather than selling them is much easier.

If you're using a robo advisor, stay away from buying and selling securities during the account transfer, as this could delay the process. If you try to initiate a trade during the transfer, the brokerage could freeze the process, and you won't be able to put in orders until the transfer has been fully processed.

Copyright 2022 U.S. News & World Report

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