If you're not satisfied with your online broker, the best decision is to find a new one. The right brokerage account is critical to get the most out of your investments. Once you're ready to switch over, you can transfer stocks between brokers so that you still have your previous investments.
Transferring stocks isn't hard, but if you don't do it correctly, you could cost yourself money. To avoid that, you need to know the right and the wrong way to transfer stock between brokers.
How to transfer stock between brokers
The most common way to transfer stock between brokers is the direct transfer method. Most brokers use the Automated Customer Account Transfer Service (ACATS) to move investments this way.
Here's how an ACATS transfer works:
- Start the process by filling out a transfer initiation form with your new broker. This form should be available online, but you can call your new broker if you need help.
- Your new broker communicates with your old broker to set up the transfer.
- Your old broker must validate the transfer information, reject it, or amend it within three business days.
- Assuming your old broker validates the transfer and there are no issues, the transfer should be completed within six business days.
Your old brokerage firm may charge a transfer fee. Fortunately, the best online brokers frequently offer deals in which they pay any transfer fees the old broker charges. Before you start your transfer, check if there will be a fee and if your new brokerage firm will cover it.
Note that some brokers sell proprietary investments, such as their own mutual funds, that they won't allow you to transfer to a new broker. Your new broker will notify you of any assets that can't be transferred.
Even small discrepancies can delay the process when you transfer stock between brokers. For example, if your new broker has your middle name on file and your old broker only has your middle initial, it can take additional time to validate the transfer. Your old broker will also need to resolve any outstanding margin loans if you have a margin account.
Despite the time it takes to transfer stock between brokers, it's by far the most cost-effective option. To explain why, we need to go over the alternative method that can be very expensive.
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Why you shouldn't sell your investments
For convenience's sake, it's tempting to just sell all of your investments and withdraw the proceeds from your brokerage account. Then, you can take that money, deposit it into your new brokerage account, and purchase the same investments you had in the original account.
That strategy may be simpler, but it comes with a big drawback in the form of potential investing taxes. If you're transferring a standard taxable brokerage account (as opposed to a retirement account like an IRA) and you sell off your assets, you'll generate taxable capital gains on any profits you've earned. And that's true even if you turn around and buy back the exact same investments with your new broker.
You could also end up paying fees when selling your investments and buying them again. This is less likely now that so many popular brokers offer zero-commission trading, but it's an unnecessary extra cost if your old broker doesn't offer that.
If you're not happy with your broker, it doesn't make sense to stay in a bad financial relationship. It's better to transfer stocks between brokers so you can use a brokerage account you like.
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By:Lyle Daly
Writer
Lyle Daly is a personal finance writer who specializes in credit cards, travel rewards programs, and banking. He writes for The Ascent and The Motley Fool, and his work has appeared in USA Today and Yahoo! Finance. He was born in California but currently lives as a digital nomad with a home base in Colombia.
