When and How to Switch Online Brokerages

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Is your online brokerage not working for you? Here’s how to switch.

Is your online brokerage not working for you? Here’s how to switch.

If you've opened an online brokerage account, you've already discovered one of the best ways to create wealth -- the historical return for the S&P 500 has averaged nearly 10% since 1928. 

Online brokerages are a convenient way to make money work for you. Many offer help defining investment goals, investment education, and access to products like stocks, bonds, commodities, and other assets.

Still, you may wonder what else is out there if you aren’t happy with your experience so far. If and when you consider transferring your portfolio to another brokerage, you’ll find the process simpler than you might think. 

Time for a change?

If you’re considering a switch, ask yourself these questions:

Am I being charged inactivity fees? If your brokerage fines you for failing to meet their minimum balance or not making enough trades, it's time to shop for a new broker.

Do I receive the support I need? You may have been drawn to a brokerage because they offered low commissions, but it’s important to know that many cut corners in other areas. If the trading platform on your brokerage's site is confusing or you're offered few educational tools, it's time to look at other brokerages. You may pay higher commissions, but you're likely to make more informed investment decisions.

Are they easy to contact? If you've called your current brokerage for information and found yourself waiting a ridiculous amount of time for answers, don’t wait to comparison shop. 

Ready to go?

The fastest, easiest way to change brokerages is an in-kind transfer. Simply put, an in-kind transfer means you don't have to sell your current investments and transfer the proceeds. You just move your existing account to a new brokerage. 

You must, however, move your existing account to another just like it. For example, an IRA should be transferred to another IRA, and a trust should be transferred to another trust. 

In-kind transfers offer at least two advantages: You avoid tax consequences, and most brokerages make it easy to do.

Here’s how to get moving.

Step 1:

Cancel any open orders at your current brokerage.

Step 2:

Get your most recent brokerage statement and find your account type, account number, and current investments.

Step 3:

Open your new account. Most brokerages make it as easy as following prompts. You will likely be asked for your name (make sure it matches the name on your current account), address, birth date, Social Security number, driver’s license information, and income.

Step 4:

If the online platform doesn’t prompt you to fill out a Transfer Initiation Form (TIF), call the brokerage to learn how. A TIF is required for the new broker to contact the old broker.

Step 5:

Wait about one week. The time it takes to transfer a portfolio varies, but that’s the average.

Step 6:

Once the transfer is complete, carefully compare a new statement to one from your old brokerage to make sure everything was included in the transfer and there are no unexpected fees.

Good things to know

  • Most brokerages charge an "exit fee." However, many will reimburse that fee if you move your portfolio to them. Some offer bonuses that more than offset an exit fee.
  • One of the few hiccups you may run into with an in-kind transfer involves investments currently in your portfolio that are not offered by the new broker. Before you decide on a new brokerage, find out if everything in your portfolio can be transferred in-kind. Generally, stocks, bonds, exchange-traded funds, mutual funds, and options can be transferred.
  • There will be additional paperwork (and time) required if you're transferring an account you own jointly to an individual account.
  • You won't have access to your portfolio during the transfer, so make sure you're happy with where things stand before beginning the process. 

If your focus is on making your money grow, you're probably a hands-on investor. If what you're seeing at your current brokerage gives you pause, explore your options. Sometimes a good situation can be made great just by making a change.

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