Trading and investing in the stock market has become enormously popular especially in recent times. Several investors and individuals who are new to the stock market begin their trading journey with a stockbroker before performing extensive research on the platform. However, over time, many investors and traders could expect more from the trading platform, thereby expecting more features and functionalities.
In many cases, investors may want to shift their investment portfolio from one stockbroker to another. There are plenty of reasons that could lead to this shift. It could so happen that one stockbroker cannot sustain their business, or that their maintenance fees are high, or that their brokerage commission and charges are expensive. There are also other key factors that are intensive on the platform offered by the stockbroker. For instance, some platforms may support basic functionalities and not have a user-friendly platform design. Whereas, some platforms may support online research, certain trading algorithms, and offer a better overall experience to the user.
How to transfer stocks between brokers?
In the earlier times, a manual transfer between brokerage accounts was followed to transfer stocks between brokers. This would come along with several difficulties such as the increased amount of time taken for the entire process and the increased risk of human error. So, in recent times, the NSCC (National Securities Clearing Corporation) developed a software system called the ACATS (Automated Customer Account Transfer Service) to make the process of moving shares between brokers easier and faster while mitigating errors. The ACATS system can facilitate the transfer between brokerage accounts for stocks, bonds, unit trusts, options, futures, mutual funds, cash, and several other investment products.
However, it is crucial to remember that both the stockbrokers or firms need to be NSCC-eligible members or be member banks of the Depository Trust Company. Both the firms irrespective of whether the firm is delivering the stock or the firm is receiving the stock, have to be compliant with the ACATS system. Here is the process through with ACATS transfers work. Typically, there are 4 major steps for every ACATS transfer.
Step 1: The process starts out by filling a transfer initiation form with your new stockbroker of choice. You can either find this form online on the website of the stockbroker or can receive guidance through a phone call.
Step 2: Your new stockbroker contacts your old stockbroker to discuss certain terms and procedures in order to initiate the transfer.
Step 3: The process of validation of transfer information begins with your old stockbroker. They can either amend the information or reject the same more or less within 3 business days.
Step 4: The final step of this process is the transfer of your account. Considering that all of the paperwork is accurate, the transfer of your account to your new stockbroker should be completed in about 7 working days.
To carry out this entire process, your old stockbroker may charge a transfer fee. In addition, ensure to avoid any discrepancies in your account or paperwork as it could delay the transfer process even further.
How to ensure that your account transfer is successful?
The first action point must be to understand the process of transfer thoroughly. It is also advisable to contact the new stockbroker to verify their requirements and policies regarding the transfer. For instance, if you have a margin account, it is best to inquire about the requirements for such an account with the new stockbroker. In addition, it would be beneficial to verify the required documents and the details regarding the transfer so that the entire process of moving shares between brokers can be hassle-free.
Challenges with transferring stocks between brokers
In order to transfer stock from one stock broker to another, it is essential for both firms to be compliant with the ACATS system. However, there are several types of securities that are not compliant with the ACATS system. For instance, several insurance companies offer annuities that are quite common. These annuities cannot be transferred through the ACATS system. The process of transfer for such types of securities varies from the process involved to transfer stocks between brokers. Typically, the 1035 exchange is used to transfer annuities. This is a provision that allows transfer without taxes on insurance products.
In addition, for individuals who hold employee-sponsored 401(k), transferring their annuities would involve a whole other procedure. Thereby, while the ACATS system can help with the transfer between brokerage accounts, there are certain challenges when it comes to other types of securities.
Why shouldn’t you sell your investments instead?
While the entire process of transferring your account across stockbrokers can seem slightly complex, many may consider alternative options. Instead of transferring their account from one stockbroker to another, many investors consider selling their investments instead, in order to avoid the process of transfer. Several individuals choose this option for the sake of convenience. The typical process beyond selling investments is to withdraw that money and deposit the same into the same stocks with the new stockbroker.
While this process may seem simple and profitable, many individuals discount the aspect of taxes on capital gains. If you aim to transfer your brokerage account from one stockbroker to another, the gains you receive upon withdrawing your investment will be table capital gains. The profits that you earn from your investment will be taxed. In addition to taxes, you may also have to pay certain fees while selling and repurchasing the same investments. So, if you are not comfortable and cannot leverage the best of your current broker’s services, it is best to transfer your account instead of selling your investments.
With the plethora of options available when it comes to stockbrokers, picking the right one for your needs and requirements can be a challenge. It is however natural for many to identify a more suitable platform compared to the one they had picked while initially starting out with their investing and trading journey. Now that you have a detailed view into the process of moving shares between brokers, ensure to research your new stockbroker before making the leap. In addition, remember to procure the list of requirements and policies of the new stockbroker in order to have a smooth transfer between brokerage accounts.