What is an in-kind transfer or ACATS transfer?
Transferring your brokerage account from one firm to another requires an automated customer account transfer (ACAT), also known as an in-kind transfer. These transfers are facilitated through the Automated Customer Account Transfer Service (ACATS), which is operated by the National Securities Clearing Corporation.
This type of transfer allows you to move your entire portfolio exactly as it is to your new broker. You won’t have to sell any of your assets to transfer the cash over. Most assets can be transferred using a transfer, including cash, stocks, funds and bonds.
It is possible to avoid the need for a transfer by simply selling your investments in one brokerage account and repurchasing those assets of different assets in a different brokerage account. But an in-kind transfer comes with plenty of benefits. Not only is it a far simpler process, but it also helps you to avoid any tax consequences of selling your investments, such as capital gains taxes
When does it make sense to transfer a brokerage account?
There are several reasons that someone might want to transfer their investments to another brokerage firm.
To save on fees
One of the most common reasons is fees. These days, it’s easier than ever to find brokerage firms that charge low fees. Many firms offer low-fee index funds and exchange-traded funds (ETFs), and it’s easy to find firms that offer commission-free trading on stocks and ETFs. So if your broker is still charging you unnecessary fees, then it’s likely worth switching.
To access more investments
Another reason to switch brokerage firms is if you’ve outgrown the investment choices with your original broker. When new investors get started, they often start with simple investments. And luckily, these are easy to find.
But as you become a more sophisticated investor, you may wish to access a more diverse selection of investments. For example, you may want to graduate from just index funds and ETFs to options, futures or forex.
On the other hand, maybe you opened a brokerage account with a day trading app, thinking you would buy individual stocks. But now that you’ve learned more about different investing strategies, you’ve decided a more passive fund investing strategy is right for you. In that case, you might decide to move to a broker that offers a better selection of ETFs and mutual funds.
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To get a special offer
Brokerage firms regularly run special promotions to bring in new business. A broker might run a promotion that offers referral bonuses when you recommend friends or family. Or you might get a sign-up bonus when you open an account and fund it with a certain amount of money.
While these special offers can be great, it’s important to explore the other features of a brokerage firm. Don’t sign up just because it has a promotional offer going on, but doesn’t necessarily offer everything else you need. Only transfer your funds if you would switch to that broker anyways, and the promotion simply creates extra incentive.
To get better customer service
Customer service is important in every industry, and it’s even more important when it involves your money. Having a broker with poor customer service can be nerve-wracking when it results in it not being able to access your money, not being able to navigate the platform and other issues.
To access a better digital platform
These days, user experience is everything. It can be frustrating trying to navigate a clunky or outdated platform, especially when plenty of other brokers have intuitive and easy-to-use websites and apps.
How to transfer brokerage accounts
The process of transferring your brokerage account may vary depending on what broker you work with, but it’s quite similar across the board. In all cases, the transfer process starts and ends with your new firm, and they’ll take care of most of the work on their end.
Step 1: Sign up for your new brokerage account
Before you can initiate a transfer of your brokerage account, you should first sign up for an account with your new broker. You can easily open your account online by completing an application. You’ll have to provide information such as your name, address, birth date and Social Security number.
It’s important that whatever type of account you’re transferring from your old account, you open the same type of account with your new broker. For example, if you’re transferring a taxable brokerage account from your old broker, then go ahead and set up a taxable brokerage account. But if you’re transferring an IRA, then that’s what you should set up with your new broker.
Step 2: Gather documents from your old broker
Before initiating the transfer process, gather all available documents from your old broker. You should download recent statements of your account, including your account number and the current value of your investments.
Having these statements is important for your own personal documentation, and may be necessary for tax purposes. It will also come in handy if anything goes wrong with your transfer, as you’ll have documentation showing what investments you were attempting to transfer.
Step 3: Initiate the transfer process with your new broker
As we mentioned, all transfers start and end with your new broker. To initiate a transfer, you’ll have to complete a transfer initiation form (TIF). For most major brokers, you’ll be able to complete this process directly on your new broker’s website.
In this form, you’ll provide information about yourself and the delivering firm, meaning your old brokerage firm. Your broker will technically have the opportunity to accept or reject your request. But unless there’s something wrong with your application, they likely won’t reject it.
Step 4: Wait for your investments to be transferred
Once you’ve initiated the transfer with your new broker, there’s nothing you can do but wait. During this time, your new broker will contact your old broker to request the assets in your account and will deposit them into your new account in their system.
The transfer process usually takes about a week after you make the request: approximately three days for your previous broker to validate the information sent by your new broker, and another three days for them to transfer the assets. Transfers may take a bit more time if the delivering entity isn’t a broker-dealer (for example, if it’s a mutual fund, bank, or credit union).
During this time, you are likely to lose access to your investments. Don’t panic — that’s completely normal. You should also refrain from trading after you’ve initiated the transfer, as this can complicate the process. In some cases, your account will be frozen during the transfer so you won’t be able to trade anyways.
Step 5: Make sure the transfer was successful
Once the transfer is complete, be sure to log into your new brokerage account to verify the transfer was successful and that all of your investments are in the new account. If for some reason your account hasn’t been fully transferred over, contact your new broker immediately. Transfer requests are purged from ACATS after two days for a successful transfer, so it’s best to report the problem before that happens.
Fees to transfer brokerage accounts
It’s important to note that you may be responsible for fees when you transfer your brokerage account via an in-kind transfer. It’s not the broker you’re transferring to that charges this fee — it’s the broker you’re leaving. Some brokers charge a transfer fee to complete the transaction of transferring your investments to a new brokerage account. Some brokers also charge a closure fee to fully remove your account from their platform.
The size of these fees depends on your broker, though you can generally expect to pay between $50 and $100. Many brokers list these fees on their website, so you can determine ahead of time how much you’ll be on the hook for.
While you can’t avoid these fees, some brokers may reimburse you for transfer fees when you sign up for a brokerage account with them. For example, let’s say you’re transferring your investments from Broker A to Broker B. Broker A charges you a transfer and account closure fee. But because Broker B wants your business, they agree to reimburse you for the fees you’ve paid.
It’s easy to hear about these fees and second-guess your decision. After all, no one wants to spend their hard-earned money on fees. But rather than letting fees keep you with a broker that you’re unhappy with, focus on the reasons you were leaving that broker to begin with — excessive fees may be what convinced you to transfer your account in the first place. In that case, you’ll probably save far more money in the long run than you’ll pay in these transfer fees.
Things to keep in mind when transferring brokers
Transferring your brokerage account from one firm to another is a simple process. But there are a few things you’ll want to keep in mind about the in-kind transfer to ensure the transfer goes as smoothly as possible.
First, as we’ve already mentioned, it’s important to ensure that you’re transferring your assets to and from the same type of account. You are likely to run into trouble if the types of accounts don’t line up, especially if you attempt to transfer assets from a tax-advantaged retirement account into a taxable brokerage account, and vice versa.
Next, understand the tax consequences of your transfer. In most cases, there shouldn’t be any tax liability created by your transfer. But if you attempt to transfer your account by selling your investments and then repurchasing them in your new account, you could trigger short-term or long-term capital gains taxes. Additionally, you could run into tax problems if you improperly transfer a tax-advantaged retirement account. Not only could there be taxes on your transfer, but you could also be on the hook for fees.
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In-kind transfers can be done with most major asset classes, but it’s important to ensure that your new broker will accept all of your investments. If you use advanced trading strategies such as margin trading or options, confirm that your new broker accepts these assets in a transfer. If not, you may be forced to either cancel the transfer or sell certain assets altogether if you really want to close your old account.
Transfers are simple when they’re done with individually-owned brokerage accounts. But if you jointly own the account with a partner, then you’ll both need to verify the transfer, which can add some additional time to the transfer process.
Before initiating the in-kind transfer and closing your old brokerage account, consider downloading all account documents. First, your old account will have information about your cost basis in the securities you own. While this data should transfer over with your securities, it’s best to maintain it yourself as well.
It’s also important to maintain any tax documents. If you’ve sold any securities and have had capital gains or losses or other taxable events, you’ll need that information when tax time rolls around.
The bottom line
When you’ve outgrown your brokerage account or find that it’s not working for you, you can simply transfer your assets to an account with a different broker. Luckily, the transfer process is simple and can be completed in about a week.
Before transferring your investments, be diligent about researching a new broker and choosing one that truly meets your needs. The last thing you want is to inadvertently choose a broker that doesn’t check all of your boxes, only to be transferring your account again in a year or two.