Are you thinking of switching your investment accounts to a different brokerage firm?
I recently made the decision to do just that, after having used the same two online brokerage firms since I started investing many years ago. In the process of making the change, I learned that switching brokers is neither a simple nor a quick process -- but that it can be worth doing anyway.
If you're contemplating a switch, here are a few key things you need to know before you take the leap.
1. You're likely to be charged a fee
When you move money from one brokerage firm to another, the broker you're leaving is probably going to hit you with a fee. I was charged $75 for an outbound full account transfer from TD Ameritrade, and $50 by Fidelity.
Such fees vary from broker to broker, so find out what you'll have to pay when you move your money out. I was told those fees could not be waived, so there's likely no way around the process of paying to extract your assets.
2. You can (usually) move securities over
The accounts I moved over were all invested in various securities. I didn't want to sell any stock, so I just filled out the paperwork to transfer the securities from one account to the other.
However, in one account, I had a very old stock that had gone to $0 when the company went bankrupt many years ago. Because the stock was still listed as part of my portfolio, but my new brokerage firm wouldn't allow me to hold shares in it, the entire account transfer was rejected.
In this particular case, I had to fill out the paperwork for a partial account transfer, and individually list all of the securities I actually wanted moved over to the new account. Had I known that earlier, I could have submitted the paperwork properly the first time, and saved myself time and hassle.
3. You will be unable to trade for days
The process of transferring securities takes time -- in my case, around nine days. The investments first disappear from your account where they're currently held. Several days later, they reappear in your new account -- and it takes another day or two after that for the history to be imported so you can see the share prices at which you bought the stocks.
If you tend to trade actively, be sure not to initiate the account transfer process until you're ready to give up access to your investments for over a week, since you won't be able to buy or sell while it's under way.
And, when you do make the switch to your new broker, have a printout showing the details of the stocks you own if you want to monitor the investments in the interim -- unless you can remember them all -- since you'll lose the ability to see them in your old account days before they show up in your new one.
4. You may have to get a medallion signature guarantee
When transferring one of my accounts, I hit a snag. I was moving the money into a joint account at my new brokerage firm, but it was coming from an individual account. Because ownership of the account was changing, I was told I'd need to get a "medallion signature guarantee." This is a special certification by a financial institution that verifies your identity. It's more secure than getting something notarized, and getting one is a major hassle. Not all financial institutions offer them, and you must provide lots of documentation proving you own the account.
We were able to get around the need for the medallion signature guarantee by first changing the account at the old broker to joint ownership, and then initiating the transfer. However, we had to wait to move the money until we got a statement showing the original account had been converted to a joint account.
Bottom line: If you're changing the ownership of the securities in any way, including putting a new name on your new account -- perhaps because you got married -- be prepared to jump through extra hoops.
5. Getting in-person help can be invaluable
When I started the process of moving all of my different brokerage accounts over, I realized quickly that there were a lot of forms I was going to have to submit.
My new firm allowed me to submit documents online, but doing so required uploading signed copies of paperwork as well as statements for every account I was transferring over.
Thankfully, I was able to go into a local branch instead of trying to handle everything online myself. A very helpful account specialist assisted me in filling out all the paperwork, including forms to link all my new investment accounts under one login ID. The specialist then sent everything off for me, properly signed, so I didn't have to upload anything.
If you can get in-person help, I recommend it. It's much easier than trying to figure everything out on your own.
6. You might get free money or other perks
Going through the process of switching was a big hassle, but there was a reason I did it: My new broker was offering generous incentives.
I was able to get several hundred dollars in rewards for transferring multiple accounts, with the rewards level based on the account balances. I was also able to get up to 100 free trades per month, and I became eligible for a boost in credit card rewards with a linked card that offers premium rewards for maintaining a certain investment account balance.
Most brokerage firms offer some kind of reward for transferring your business to them, especially if you have a reasonable amount of money to move over. If you're thinking of switching brokers, comparison shop to find one that's offering rewards that work for your situation, so you can get some free money to make up for the hassle.
Is switching brokers the right choice?
If you're reasonably happy with your brokerage firm, there's likely no reason to switch. However, it's worthwhile to compare things like the commissions you pay and different investment offerings.
There's vast competition today among online institutions, and if you've been with your broker for a long time, it's worth seeing what else is out there. You may find a broker you like better that rewards you immediately for moving your investments over, and provides you an account offering better perks over the long term.
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