A reader writes in, asking:
“I have a few accounts with a broker at Edward Jones. He was recommended by a family member, and he hasn’t tried to cheat me in any way. But I don’t think the service I’m receiving is sufficient to justify the commissions I’m paying. Having read about Vanguard and index funds, I think that’s where I’m headed.
But I don’t actually know how to move my money. Do I just call my Jones guy and tell him I’m leaving? I don’t relish the thought of that conversation.”
To transfer an account from one brokerage firm to another, you don’t actually have to call your current advisor/broker first. In fact, you may not have to call him at all. And to the extent possible, I’d suggest avoiding it. The receiving brokerage firm (in this case, Vanguard) has an incentive to be as helpful as possible, whereas the company you’re leaving has an incentive to make things difficult and/or give you a sales pitch to get you to stay.
What you’ll want to do is originate the process at the receiving brokerage firm. Either open an account online (choosing during the application process that you have an account you want to transfer over), or give them a call and explain what you want to do.
The receiving brokerage firm will give you the appropriate paperwork to sign. Once you sign it and send it back in, they forward it to your old brokerage firm and handle the process from there.
Getting a Medallion/Signature Guarantee
Some brokerage firms (including Edward Jones) will require a “signature guarantee” (sometimes called a “medallion guarantee”). This is not the same thing as having your signature notarized, as it has to be done by certain employees of a financial institution such as a bank or brokerage firm. Most places will only provide a signature guarantee if you have an account with them, but I’ve heard of some credit unions offering to do it for anybody.
Before heading to your bank, I would suggest that you call ahead, because it’s often the case that only a certain manager can provide a signature guarantee, and you wouldn’t want to make the trip only to learn that the right person isn’t at work that day.
Transfer “In Kind” or Liquidate Everything First?
As part of the transfer process, the receiving brokerage firm will typically ask if you want to:
- Bring things over “in kind,” or
- Have your old brokerage firm liquidate everything and send it over as cash.
If the account is an IRA and there are no fees to sell any of the holdings, it’s probably simplest to have everything liquidated and moved over as cash.
Conversely, if the account is an IRA and there will be fees to sell any of the holdings, it’s usually best to compare the cost at each brokerage firm and do it wherever it will be less expensive.
Finally, if you’re transferring a taxable account, you’ll probably want to bring things over “in kind,” because liquidating everything would result in capital gains/losses. After everything is transfered over, you can go through the holdings one by one to see which ones should be sold immediately, which ones should be sold later (after a short-term capital gain has become a long-term capital gain, for instance), and which ones should be kept.