Published in: Buying Stocks | Dec. 18, 2018
How to Transfer Stocks From 1 Brokerage Account to Another
By: Dan Caplinger
Change your mind about your broker? Make a switch without getting burned.
Having the right brokerage account is critical in order to get the most out of your investments. These days, it's not enough just to offer the ability to buy and sell stocks whenever the markets are open. A broker also has to provide the tools that investors want to support their investing, and if you're not getting what you want from your broker, switching to another brokerage account is generally a smart move.
Unfortunately, transferring stocks from one brokerage account to another isn't quite as easy as you might think. That shouldn't stop you from going with the broker that's right for you, but it does mean you need to do your research and make sure you understand what's involved before making a final decision to pick a better broker for you.
Why the easy way isn't the best way
The problem with transferring a brokerage account to another broker is that moving certain types of investments from broker to broker isn't as easy as you'd think. Some brokers sell proprietary investments that they won't allow to be transferred to a different brokerage company. Even with regular investments like stocks, mutual funds, and exchange traded funds, the transfer process can involve a surprising amount of time and effort.
Because of that, it's tempting just to sell all of your investments and then withdraw the proceeds from your brokerage account. That way, you can just get a check or electronic funds transfer for the cash, and then deposit it into your new brokerage account and purchase the same investments you had in the original account.
That strategy might be simpler, but it comes with two main pitfalls. First, you have to pay two sets of transaction fees -- one to cash out of the original account, and the other to buy back the stocks in the new account.
More importantly, though, there can be tax consequences. If you're transferring a standard taxable brokerage account (as opposed to a retirement account like an IRA) and you sell off your assets, you'll generate taxable capital gain on any profits you've earned -- even if you then turn around and buy back the exact same investments with your new broker.
Avoiding tax on brokerage account transfers
The better solution is to use direct transfer methods for securities. Most brokers can use what's known as the Automated Customer Account Transfer Service, or ACATS for short, to move a wide variety of investment assets, including cash, stocks, bonds, and listed option contracts. The customer begins the process by completing a transfer initiation form and sending it to the new broker. That broker then talks to your current broker to arrange for delivery of the investment assets.
Even though ACATS has automated elements to it, various regulations and other requirements make the process take time:
- The delivering firm has to ensure that the information on the transfer form matches up exactly with your customer information on file. If there are even the smallest of discrepancies -- a middle initial instead of a full middle name, for instance -- then it can cause a rejection that will require additional work to resolve. It also has to resolve any outstanding margin loans you might have if you have a margin account with the broker.
- The receiving firm has to take the list of assets that the delivering firm provides and ensure that it can accept all of the assets involved. In some cases, your new broker might choose not to accept the account transfer after all, putting a major wrinkle into the process.
Overall, it's not unusual for the process to take a week or longer. That's much longer than a simple cash transfer would take, but given the tax consequences of the alternative, it's generally worth the extra time to do a direct transfer.
Make the move
Finally, make sure to look at any fees that you might be charged for the transfer. Your old broker might try to charge a transfer fee, but often, new brokers will offer deals in which they pay any transfer fees the old broker charges. With the potential for fees to total hundreds of dollars, it's well worth the time to take steps to avoid them.
If you're not happy with your broker, it doesn't make sense to stay in a bad financial relationship. Transferring your stocks from one brokerage account to another isn't quite the simple process it should be, but you'll still come out the other side of the process happier in the end.
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