Sometimes, you need to move your portfolio from one brokerage to another. Perhaps your old broker went out of business, or maybe they raised their rates and you want to go somewhere less costly. Or, you've decided to open an account online and trade for yourself, or even allow robo-advisor algorithms to trade on your behalf. In any event, you will need to transfer your shares from one custodian to another. In this article, we will describe how this can be done seamlessly and in relatively short order.
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.
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.
Once the stock is 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 and accounted for. Once 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.
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.
Other ineligible securities depend 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).