If you have an account at an online broker and you haven’t checked out the competition in a while, it would be worth your while to take a look.
Trade commissions have come down in recent years, and investors who are willing to transfer their brokerage accounts may save considerably by doing so.
That’s especially true if you’re a frequent stock trader, but even buy-and-hold mutual fund investors might find greener grass: Expenses on funds from companies such as Charles Schwab, Vanguard and Fidelity have hit record lows.
But inertia is powerful. This guide to switching brokerage firms may be just what you need to prioritize a change. It’s not nearly as time- or paperwork-intensive as it sounds.
How to transfer brokerage accounts
The new broker you’re eyeing will be more than happy to hold your hand through this process. It wants your money and is keen to help you move it over. So lean on its customer support as you use this five-step process:
1. Get your most recent statement from your existing account. Your new broker will need the information on this statement, such as your account number, account type and current investments.
2. Open an account at the new broker. Most accounts at most brokers can be opened online. Be sure to have some information handy — the broker is likely to ask for your name, address, income, birth date, Social Security number and driver’s license number. The account you open should match the account you’re transferring — in other words, an IRA account should be transferred to an IRA, a taxable account should be transferred to a taxable account.
» Need more specifics? Here’s how to open a brokerage account.
3. Initiate the funding process through the new broker. Generally, you’ll be walked through a step-by-step process online that includes filling out a Transfer Initiation Form, or TIF. Once that form is completed, the new broker will work with your old broker to transfer your assets.
4. Watch and wait. Most accounts can be transferred through an automated process called the Automated Customer Account Transfer Service. The broker you’re transferring to will review the assets in your account and determine whether they can be transferred in-kind, which means you don’t have to sell investments. Most stocks, bonds, options, exchange-traded funds and mutual funds can be transferred as is. Still, some investments — particularly those not offered or supported by the new broker — will need to be sold, in which case you can transfer the proceeds from the sale. Ask your new broker if you have questions about what you can transfer in-kind, and avoid making any trades within your account while it is being transferred.
5. Enjoy your new account. In most cases, the transfer is complete in three to six days. Your broker may be able to give you a more specific time frame. Some even have online trackers so you can follow that money.
Understanding brokerage transfer fees
There’s a good chance that a full transfer out of your account will come with a fee from your old broker, generally from $50 to $100. There’s no real way around it, but you may be reimbursed by your new broker, either formally via a program that reimburses transfer fees or informally via a new customer cash-back or free trading bonus.
» Compare and save: Learn more about our best online brokers
Even if you can’t get the new broker to somehow eat the cost of making the switch, you may find that the fee — while a bummer — is worth it if you’re able to reduce your trading commissions. This calculator will tell you when you’ll break even on a transfer fee and how much you’ll save by transferring to a less expensive provider.
Keep records from your old account
Finally, hang on to statements from your old accounts. They will give you a history of IRA contributions, for example, so if you ever convert a traditional IRA to a Roth IRA or need to take an early distribution of Roth IRA contributions, you’ll know how much of your money was contributed after-tax.
If you have a taxable account, your statements should detail the cost basis — or the original value — of your investments. Your new broker may not have this kind of history available, and it will be important come tax time, especially if you’ve sold investments. You’ll need the cost basis to report any capital gain or loss.