Sometimes, investors need to transfer their investment portfolio, including stocks, from one broker to another. There are several reasons why investors might transfer stock between brokers, such as the old broker went out of business or your current broker increased their fees and commissions. Other reasons for transferring stocks from one broker to another is to take advantage of a better trading platform, online research, or robo-advisor algorithms to trade on your behalf.
- Investors may decide to change brokers, and automated systems can help facilitate an easy transfer of most types of investments.
- To move stocks from one broker to another, both brokers must be National Securities Clearing Corporation members.
- The Automated Customer Account Transfer Service (ACATS) allows the automated transfer of stock.
- The broker who will be taking over the portfolio will initiate the transfer by communicating with the current broker.
- Not all types of investments are easily transferred between brokers—such as annuities or proprietary investments by the former broker.
How Stock Is Moved
Common stock shares are most often transferred from one broker to another by a software-based system known as the Automated Customer Account Transfer Service (ACATS). Prior to ACATS, a manual transfer system was used, which took far longer and was prone to human error.
The National Securities Clearing Corporation (NSCC) developed ACATS, which can transfer stocks, bonds, cash, unit trusts, mutual fund options, and other investment products. However, only NSCC-eligible members and Depository Trust Company member banks can use ACATS.
Both the firm delivering the stock as well as the firm receiving it have individual responsibilities in the ACATS system. For example, if a shareholder wants to transfer his or her share of common stock from Firm A to Firm B, Firm B will initially be responsible for contacting Firm A to request the transfer. Once Firm B has submitted the transfer request with instructions, Firm A must either validate the instructions or respond with an exception within three business days. If there is no exception, Firm A has four days in which to complete the transfer after validating the request.
While the ACATS reduces errors significantly from a manual transfer, it is advisable for investors to maintain their own records and ensure accuracy of the portfolio before and after the transfer.
Validation includes confirming that the customer's name and social security number match the information provided by Firm B. After receiving the transfer request and validation, Firm A must cancel all open orders and cannot accept any new orders on the client's account. Firm A must also return the transfer instructions to Firm B with a list of securities positions and any money balance on the account.
After Moving Brokers
Once the stock has been transferred, Firm B is responsible for all reporting to the shareholder. Brokers are required to provide clients with a financial statement at least once every quarter. Experts also recommend that customers maintain proper records and make their own calculations to double-check that all assets are properly transferred. Once the customer account information is properly matched, and the receiving firm decides to accept the account, the delivering firm will take approximately three days to move the assets to the new firm.
Limitations for Moving Assets
There are several types of securities that cannot go through the ACATS system. Annuities cannot transfer through the system as those funds are held with an insurance company. To transfer the agent of record on an annuity, the client must fill out the correct form to make the change and initiate the process.
Annuities can be transferred via a 1035 exchange, which is an IRS provision that allows the tax-free transfer of insurance products. However, there are requirements that need to be met, such as the transfer might need to involve the same insurance product or annuity. Also, the original provider can charge fees called surrender charges, although there are cases whereby those fees can be waived.
For investors that hold annuities in an employer-sponsored plan, such as a 401(k), transferring annuities has gotten easier with the passage of the SECURE Act by the U.S. Congress in 2019. The new ruling makes annuities more portable, meaning if you leave your job, your 401(k) annuity can be rolled over into another plan at your new job.
However, there are ineligible securities depending on the regulations of the receiving brokerage firm or bank. Many institutions have proprietary investments, such as mutual funds and alternative investments, that may need to be liquidated and which may not be available for repurchase through the new broker. Also, some firms may not transfer unlisted shares or financial products that trade over the counter (OTC).