Jun 15, 2022
Common stocks are frequently transferred from one broker to another through a computer-based system called the Automated Customer Account Transfer Service (ACATS). Before ACATS, the manual transfer method was in use which was much slower and was more susceptible to human mistakes.
The National Securities Clearing Corporation (NSCC) created ACATS, which allows the transfer of cash, bonds, stock unitrusts, mutual funds options, and other investment options. But only members of the NSCC that are eligible, as well as Depository Trust Company members, can utilize ACATS.
The company delivering the stock and the one receiving it each have their responsibilities within their respective roles in the ACATS system. If, for instance, an investor wishes to transfer their ordinary stock to B, Firm B would first be the one to contact Firm A to request the transfer. After Firm B has made the transfer request along with directions, Firm A has to verify the request or deny or modify requests within three days. The transfer will be settled within six business days if no exceptions are made.
Validation involves confirming that the name of the customer and the Social Security number matches the information supplied by Firm B. Upon receipt of the transfer order and confirmation, Firm A must cancel all open orders. It cannot accept any new orders placed on account of the client. Firm A must also send Transfer instructions to Firm B, along with an inventory of the securities positions and any balance of money in the account.
After the stock has been transferred, Firm B is responsible for all reports for the shareholders. Brokers must provide clients with an annual financial report at least every quarter. Experts recommend that clients keep accurate records and do their calculations to verify that all assets have been properly transferred. When the information on the account of the customer is matched correctly, and the receiving company decides to take the account, the delivery firm will need about three days to transfer funds to the new company.
There are a variety of securities that are not able to go via the ACATS process. Annuities purchased through insurance companies are not transferable to the program. To transfer an agent registered for an annuity, the client must complete the appropriate form to effect the transfer and start the process.
Annuities are transferable through the 1035 exchange. This constitutes an Internal Revenue Service (IRS) provision that allows the free transfer of insurance products. However, some requirements must be fulfilled to transfer; for instance, it may require one insurance product or annuities. In addition, the original company may charge surrender fees, though there are instances where the fees are not charged.
For investors who have annuities under an employer-sponsored plan like a 401(k), the process of transferring annuities is now easier due to the adoption of the SECURE Act by the U.S. Congress in 2019. The new rule makes annuities more transferable which means that if you decide to leave your job, you can transfer your 401(k) annuity could be transferred into a different plan once you are employed at a different.
There are ineligible securities based on the rules of the acquiring bank or brokerage firm. Many institutions have proprietary investments, including mutual funds or alternative investments that might need to be liquidated and could not be available to repurchase with an intermediary. Some firms will not be able to transfer shares that aren't listed or financial products traded over the counter.
One thing often ignored when you request an in-kind transfer is the possibility of paying charges. Maybe you're thinking about the disadvantages of your current broker and how your new one will be better. No matter the reason, a lot of brokers charge fees if you choose to transfer your account. Some do not, but there could be a charge of up to $150 for you to leave your previous broker.
However, some brokerages offer incentives to encourage customers to change. Although your previous broker may charge a fee to transfer accounts, the new broker's reward will more than compensate for the fee. Some brokers provide incentives of up to a hundred dollars. Be sure to read the fine print on the site of the new broker to determine exactly what's required to be eligible for one of these incentives.