Changing stockbrokers? Don’t reward the bad guys.
- February 15, 2010
- 2 comments
- Posted in Investing, Latest Posts
If you’re unhappy with your stockbroker, and move your account to another firm, don’t sell your securities before you leave. That gives the bad broker a huge good-bye present, in the form of a mountain of sales commissions. My friend Tom Benson, who analyzes customer accounts for improprieties, says he’s currently handling a case where the investor sold out and left the broker with a $24,000 “reward” on his way out the door. A bad broker might claim that you’re required to sell everything before moving on, but that’s not true. Your securities can be transferred to a new firm intact. Here’s an excerpt from my new book, telling you how that happens:
The new firm will send you a form from the Automated Customer Account Transfer Service (ACATS). You enter the details of your current account and send it back. The new firm will then tell your old firm to transfer the securities. When they arrive, the new firm will check them before accepting and depositing them in your account. The entire process may take two to four weeks (sometimes more), depending on the types of securities you own. Avoid any buying or selling during this period. It will put a stick in the spokes.
There can be problems. Maybe you made an error on the form. Maybe you owe fees to your old firm that haven’t been paid. Maybe you own stocks on margin, and the new firm doesn’t want to accept them. The new firm might not accept nonstock securities, such as options or your old firm’s name-brand mutual funds and unit trusts. You’ll have to cash them in or leave them where they are. If you cash them in, you may own exit fees or redemption penalties; if you leave them, you may be charged a $40 inactive-account fee every year. (These are good reasons to stay clear of broker-brand products in the first place.)
Individual Retirement Accounts may be slower to move than other securities, if you need to change the custodian. Fee-based advisory accounts could be more complicated, too.
Don’t ask the old firm to ship securities directly to you. That might take weeks of “misunderstandings,” arguments, and tears. Besides, you want to keep the securities at the new firm, anyway. They’re safer there and on hand if you want to sell.
When interviewing a potential new broker, ask: “Which securities in my present portfolio would you sell? Why? What would you replace them with? Why?” A new broker who wants to replace everything is angling for a mountain of commissions, too. Maybe you should be talking with someone else.
Tags: sales commissions, stockbroker
Ms Quinn,
I don’t think my broker is bad, but I would like to move from actively managed mutual funds to index funds. Won’t I incur large costs in selling the old and buying the new? The expense ratios of my funds range from 1% to 2% compared to .2% of an index fund.
If your broker roped you into mutual funds that charge a penalty unless you hold them for up to seven years, yes, there’s a cost. You might also owe capital gains taxes, if you’re holding at a profit. But cap gains taxes are low today. At http://www.finra.org/fundanalyzer, you can estimate the amount you’ll pay in future expenses by holding your funds and compare that with the tax you’d pay.