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How to transfer a brokerage account in 6 steps

What should I keep in mind before transferring accounts?

3 things to consider before transferring a brokerage account

The bottom line

LearnInvesting 101How to Transfer a Brokerage Account

How to Transfer a Brokerage Account

Aug 12, 2022

·

6 min read

There are many factors to consider before switching to a brokerage account including fees, tax implications, and types of securities. To understand that is beneficial.

A brokerage account typically houses financial securities for investment purposes. Investors with this type of account can invest in stocks, bonds, exchange traded funds (ETFs), options, and mutual funds

Since assets in a brokerage account aren’t required to be held indefinitely, it may be helpful to understand the steps in how to transfer a brokerage account.

How to transfer a brokerage account in 6 steps

Transfers are initiated by the new brokerage firm, although the old brokerage will also have to take certain actions to complete the transaction.

  1. Understand the type of transfers

There are two types of transfers; one is very quick and one is a bit slower. The two types also have different tax implications. 

  • In-kind transfers

    . This type of transfer moves assets or securities—without buying or selling—from the old brokerage account to the new one. Since no investments are being bought or sold, taxes aren’t triggered. In-kind transfers are also known as ACAT, so named for the Automated Customer Account Transfer Service, the electronic system used to transmit assets between brokerage firms. The process could take about six days or longer, depending on if transferring the account to a non-brokerage firm like a bank or credit union, or due to investor error on the request forms.

  • Manual transfers.

    In some cases, an in-kind transfer isn’t possible. This may be because a brokerage firm doesn’t participate in ACATS, an investor is doing a partial transfer, or the new firm doesn’t offer the same types of securities. With a manual transfer,  investments are liquidated, or sold, and transferred as cash for deposit into the new brokerage account. A non-ACAT transfer can take significantly longer since it’s typically paper-based versus electronic. This type of transfer can expose the investor to more risk because there is no time limit for completion, and markets may fluctuate between the beginning and end of transfer—a period when the assets are inaccessible.

  1. Contact your new brokerage firm

Before initiating a transfer, it’s necessary to open an account with the new brokerage, also called the receiving firm. In most cases, this is done online by providing information such as your name, address, Social Security number, and the type of account opening. 

The receiving firm will help guide investors through the transfer process step-by-step, including the types of forms needed when initiating the transfer. 

  1. Download statements from your current brokerage

Log into your existing brokerage account and download as many statements as possible. Keeping these records on file might be useful if necessary to reference them in the future, such as for tax purposes. Plus, recent account statements will likely include financial information the new brokerage firm needs when reviewing and opening the new account, and initiating the transfer. 

  1. Use the correct forms

The new brokerage typically will ask the investor to fill out a transfer initiation form, also known as a transfer instruction form, to initiate the move from one firm to another. Account information that may be requested includes Social Security number, details about the old brokerage account, as well as the types of assets and amount to be transferred. 

The new brokerage also may ask for additional documentation, such as brokerage statements from the old firm, though this requirement can vary between brokerage firms. 

These forms include instructions to the brokerage on the type of transfer and description of the assets. Incorrect information or errors could result in fees, delays, or the brokerage selling assets before transfer, for example, which could lead to tax consequences.

Once the transfer initiation form is submitted for an in-kind transfer, the new brokerage will contact the old one to start the transfer. If doing a manual transfer, the first step may be to liquidate any assets, and in some cases, do the transfer yourself.

  1. Monitor the transfer status

If requesting an in-kind transfer, the old brokerage firm has three business days to respond to the transfer request from the new one. It may reject the request if the form has been filled out incorrectly, or if there are questions about ownership of the account. Contacting the old brokerage can be helpful in fixing any errors. 

Stay in touch with both brokerages to see whether each has done its part to complete the transfer process. In many cases, it’s as simple as logging into the account online and checking the status: Has the new brokerage received the transfer initiation form request, processed it, and initiated the transfer with the old brokerage firm?

  1. Confirm assets are transferred

The transfer is complete when assets enter the new account. An investor can confirm this by contacting the new brokerage, or in some instances, the new firm will provide updates electronically from start to finish. 

What should I keep in mind before transferring accounts?

There are certain types of securities that can’t be transferred in-kind, including:

  • Annuities.

    A type of investment issued by an insurance company that makes periodic payments designed to last for the investor's life or a specified number of years.

  • Bankrupt securities.

    Shares of common stock that are deemed worthless and stop paying dividends.

  • Private placement limited partnerships.

    A method in which accredited investors can invest in non-publicly traded ventures by purchasing ownership shares. 

  • Any securities unavailable at the new brokerage firm.

    Mutual funds, money market funds, or securities that aren't available at the new brokerage.

Holding any of these types of securities may cause delays when submitting the transfer request. So, an investor will need to decide (and instruct the old brokerage firm) whether to leave these securities in the existing account or sell them and transfer the proceeds.

Delays may also occur if transferring retirement accounts, such as traditional or Roth IRAs. These types of accounts require a financial institution to act as the holder or custodian—with a custodial arrangement between the investor and old firm. Transfers may be disrupted if there are any outstanding fees—such as for withdrawals—or if the custodian doesn’t allow transfers.

3 things to consider before transferring a brokerage account

Investors may want to think through the following three questions before switching brokerage firms. 

  1. Are there high fees?

    Many brokers offer low fees or zero-commission trading. A brokerage account that charges high fees may reduceinvestment returns. 

  2. What are the transfer fees?

    Depending on the account and the types of securities owned, a brokerage may charge fees for closing the account and transferring securities to a new firm. Some brokerages, however, offer incentives such as bonuses for opening a new account that could make up for the fees paid.

  3. What are the tax implications?

    Transferring retirement accounts could result in the transfers being treated as distributions if the rollover is not handled properly. In such cases, investors face the possibility of paying taxes and penalties. Selling assets before transferring them could also trigger capital gains tax

The bottom line

There are many factors to consider before switching to a new brokerage account including fees, tax implications, and types of securities offered. There are different procedures and rules for transferring assets manually or in-kind. Contacting both the new and old brokerage firm will help in understanding the paperwork and process involved with a transfer.

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