Switching Online Brokers: Here’s How To Transfer Your Investments To A New Account

Investing is more popular than ever, with many online brokerages competing for your business. That competition has driven fees down and led to perks like no commissions on stock and exchange-traded fund (ETF) trades, plus the option to buy fractional shares. If you’re stuck paying high fees at an older broker, switching could be worthwhile — even though moving your holdings isn’t always straightforward.

How to transfer brokerage accounts

Switching brokers is not uncommon for several reasons. If you decide to switch, you have two ways to move your money.

Cash transfer

Cash transfers are the most basic way to move your investments from one broker to another. If you have a brokerage account, this isn’t too difficult. You sell your securities and then move the cash to the new brokerage. You may not even need help, since you can withdraw the cash. Then you can invest the money how you choose at your new broker.

If you have a lot of securities though, this approach can be cumbersome, and selling could trigger taxes on any capital gains. Even relatively modest gains could make it more advisable to go with an in-kind transfer to avoid the tax consequences.

Follow these steps to complete a cash transfer:

1. Sell your investments. First, sell your investments to convert them to cash. As mentioned, this can have tax implications.
2. Withdraw the money. Request a withdrawal to move the money from the sales into your bank account.
3. Deposit into your new brokerage. Once the withdrawal is complete, deposit the money into your new brokerage account.
4. Select investments. If desired, select investments at the new brokerage and purchase shares of them.

In-kind transfer

Fortunately, there is a way to transfer your shares without selling. There is a special clearinghouse for this process called Automated Customer Account Transfer Service (ACATS). These transfers are commonly referred to as in-kind transfers.

When your account undergoes an in-kind transfer, it essentially means “as is.” In other words, all of your shares, buy/sell history, and cost basis are transferred to the new broker just as they were at the old one.

The easiest way to complete an in-kind transfer is to move an account to a new account of the same type. That means if you have a taxable brokerage account, it should be transferred to another taxable brokerage account. The same applies to a traditional IRA, Roth IRA and so on. While transferring to a new account of a different type is possible, it may delay the process. Plus, you may have to provide additional documentation proving ownership in this situation.

It’s also important to have the right paperwork when switching brokers. You must fill out a transfer initiation form with the new broker, also called the receiving broker. This will ensure you avoid unnecessary fees and that the process won’t be delayed.

When filling out your transfer initiation form, you will need key pieces of information, such as:

• Name
• Account number
• Social Security number
• Previous broker’s information
• Whether this is a full or partial transfer

Another thing to keep in mind is that while this form is going to the new broker, it should match the information on file with the old one. For example, you should use the name on file with the old broker if you had a name change. You can always change it later with the new broker if necessary.

If you’d like to complete an in-kind transfer, reach out to your new broker to start the process. Here are the steps involved:

1. Gather information from your old broker. Gather information from your old broker, such as your most recent account statement and buy/sell history.
2. Contact your new broker. Ask your new broker to help with the transfer, asking about any incentives or promotional bonuses.
3. Wait for the transfer to complete. Once you ask the new broker to transfer your investments, you only have to wait for it to complete. The process typically takes three to six business days.
4. Verify the transfer. After the transfer finishes, get acquainted with your new account dashboard and perform basic tasks like linking your bank account.

When to consider switching brokers

Switching brokers isn’t a minor decision, especially if you have a large portfolio. But there are many reasons why you may want to switch. Your existing broker may have any number of issues:

• High fees/commissions. You can likely do better if your broker charges you $20 per trade. Many brokers today have very low or no commissions.
• Poor or minimal customer service. Your broker should allow you to get help when you need it. It’s a red flag if you can rarely get a hold of someone and when you do, they can’t answer your questions.
• Outdated website or wonky app. If your broker’s website is arcane and complicated or your financial app seems to keep crashing, it might be time for a change.
• Limited investment options. Some brokers offer common stocks, ETFs, international stocks, low-cost options trading, mutual funds and cryptocurrency. Look for one with your preferred investments.
• Proprietary funds. These funds are only available through a specific firm or brokerage, meaning transferring them may not be possible.

A new broker may offer more favorable options for any of the above, which would be an added benefit of switching. Thus, before pulling the trigger, you should do your own research and consult a tax professional where appropriate.

Considerations before switching brokerages

Switching brokers is often the right decision in the long run, but there are things to consider first. Among the most significant considerations are potential fees and tax implications.

Transfer fees

Possible fees are often overlooked when requesting an in-kind transfer. Perhaps you are focused on the negatives of your old broker and how the new broker will be much better. Whatever the reason, many brokers charge a fee if you decide to have your account transferred. Not all do, but there may be a fee of about $50 to $100 for leaving your old broker.

On the other hand, some brokerages offer incentives encouraging people to switch. Although your existing broker may charge a fee to move your account, the new broker’s incentive can more than compensate you for that fee. Some brokers offer bonuses of several hundred dollars and may even offer to pay the fees of the old broker if you incur them. Read the fine print carefully on the new broker’s site to see exactly what’s needed to qualify for these promotional incentives.

Tax implications

The tax implications are one of the biggest reasons to let your new broker handle the account move via an in-kind transfer. You could trigger capital gains if you opt for a cash transfer and sell all of your securities. And if you sell securities you’ve owned for one year or less, you may run into short-term capital gains, which have an even higher rate than the tax rate for securities owned more than a year.

In addition to the risk of selling securities for cash, there are tax implications if you transfer retirement accounts. These accounts have special rules when transferring, including a custodian requirement. If you are under the allowed retirement age, the transfer could be treated as a distribution if not handled properly, resulting in taxes and penalties. Plus, if the transfer isn’t completed within 60 days, that, too, could trigger a distribution.

As you can see, there are quite a few tax considerations when moving your accounts. Your new broker will be familiar with the process and know how to handle it correctly. Allowing the brokerage to take care of the transfer is usually the best way to avoid costly errors.

FAQs

• How much does it cost to transfer a brokerage account?
  

  The fee to transfer a brokerage account varies but typically costs between $50 and $100. Some brokers may offer incentives or promotions that cover transfer fees.

• Can you transfer a brokerage account to a family member?
  

  It is not possible to directly transfer a brokerage account to a family member. However, moving the investments with an in-kind transfer may be possible. The family member who will take ownership must open their own brokerage account and then request an in-kind transfer from the brokerage.

• Can I move my stocks from one brokerage to another without being taxed?
  

  An in-kind transfer is the simplest way to move your stocks from one brokerage to another without tax implications. This requires contacting the new brokerage and asking them to initiate the transfer. Check with the brokerage to see if it offers the same or equivalent investments to avoid trades during the transfer.

Bottom line

You may want to switch to a new broker for many reasons, including high fees, poor customer service, or a frustrating website or app. Whatever the reason, you can transfer your account via cash or in-kind transfer.

The process shouldn’t be too complicated if you work with your new brokerage on an in-kind transfer. Just make sure you do your research and have all the information needed to make the switch. Thankfully, your new broker will do most of the heavy lifting once you start the process. And once they do, you’ll be ready to use your new and improved account.

— Bankrate’s Brian Baker contributed to an update of this story.