What You Need to Know About Brokerage Account Transfers

The process of moving your money usually goes smoothly, but you can help by knowing how the transfer works.

Motley Fool Staff
the Financial Industry Regulatory Authority
Apr 20, 2014 at 2:00PM
Investment Planning

Every now and then, investors transfer their securities accounts from one broker-dealer to another. While the transfer process usually runs smoothly for most of the thousands of accounts transferred every year, delays occasionally occur.

Here are answers to five questions that will help you better understand brokerage account transfers.

1. How are accounts transferred between broker-dealers?
Most transfers these days are automated. Broker-dealers transfer customer accounts through the Automated Customer Account Transfer Service, or ACATS, operated by the National Securities Clearing Corporation. Securities accounts that hold the most common assets, such as cash, stocks and bonds of domestic companies, and listed options, are easily transferrable through ACATS.

2. How does a customer begin the transfer of an account?
To initiate the transfer process, you must complete a Transfer Initiation Form, or TIF, and send it to the brokerage firm where you want to transfer your account. This new firm, called the receiving firm, can provide you with this form. Once the receiving firm gets the TIF, it starts the transfer process by getting in touch with your current broker-dealer, known as the delivering firm, via ACATS.

3. What's involved in the account transfer process?
Although automated, the transfer process is somewhat complicated, and certain protocols and regulations must be followed. Once the receiving firm obtains the TIF, it enters certain customer information into ACATS, including the name on the account, Social Security number, and account number at the delivering firm. Shortly thereafter, ACATS automatically lets the delivering firm see that a request to transfer the account has been made. The delivering firm has one day to validate the transfer request.

To prevent the unauthorized transfer of an account, delivering firms will reject any transfer request that contains certain data provided by the receiving firm that doesn't match the information in the delivering firm's records -- for example, the customer's name or Social Security number. If the account request is rejected, the new firm may correct the customer data or contact the customer to make sure the information on the TIF is correct.

Once the customer account information matches, the transfer request is considered to be validated. The delivering firm then has three business days to transfer the account. This is known as the delivery process. In total, the validation and delivery process generally takes about a week to complete.

After the transfer request is validated, the delivering firm sends a list of assets in the account to the receiving firm via ACATS. The receiving firm then reviews the list to decide whether to accept the transfer of the account. Investors should remember that broker-dealers are not required to open or accept the transfer of an account, or every asset in the account.

The credit policy of new firms is the most common reason they reject the transfer of an account. For example, the new firm may decline an account because of the quality of the securities supporting a margin loan or the account doesn't meet its minimum equity requirements.

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4. How long does it realistically take to transfer an account?
Many actions occur simultaneously when a securities account is transferred. Even with today's technology, a successful transfer from a customer's former firm to a new firm usually takes about a week to complete.

But certain situations may result in additional time needed to transfer an account. If the delivering entity is not a broker-dealer, such as a bank, credit union, or mutual fund, then a transfer likely will take more time. Also, transfers that require a custodian, like an Individual Retirement Account or a custodial account for a minor child, might take longer to process.

5. How can a customer ensure that the account transfer is successful?
For starters, it's always a good idea to review the account transfer process with the new firm before you consider moving your account. Make sure the new firm is a good fit for your account. Find out if there are any specific policies or constraints at the new firm that might affect the transfer of your account. For example, if you have a margin account, ask the new firm if it will accept it, and if so, what the minimum margin requirements are.

If you buy and sell securities during the account transfer process, this often complicates and delays the transfer. Some firms will even freeze an account that is in the process of being transferred. This means that no trades will be permitted until the transfer is completed. It's important to discuss the trading procedures with your current and new firms before initiating a transfer.

It's best to avoid any trades while your account is being transferred. If you hold any volatile stocks that concern you during the transfer process, you might consider selling them before you request a transfer.

For more information about brokerage accounts and the transfer process, visit the investors section of FINRA.org.

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