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How to Leave Your Broker

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:

  1. Bring things over “in kind,” or
  2. 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.

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  1. Tim Allen says:

    I recently left a brokerage firm (Waddell & Reed) and transferred to Vanguard. I called Vanguard for the Roth transfer and it was seamless, only took a few days, and required no medallion sig. Note–if you have your money in that brokers proprietary funds, you may have to liquidate the funds first which has tax implications.

    I transferred other funds out of there myself and after all the money was out I emailed the broker and said “I’ve decided to put my money elsewhere, thanks for your help.” He didn’t even put up a fight.

  2. I apologize to ask this question under this post, but older posts covering this topic were “Closed” to comments. I hope you don’t mind me asking a question about re-balancing. I have an account with one of those all-inclusive pre-configured funds (% Stocks vs. % Bonds vs. Cash). As one grows older and needs to change the asset allocation, what is the best strategy to do so with these types of funds? Sell it (the more aggressive fund) entirely and put it all towards a more conservative mix (easier)? Or start contributing to a fund which is a lot more conservative than needed at this time to get the total mix to a % allocation one is looking for (tricky)? Or just start putting your money towards the fund that already has the desired allocation (for this age) and leave the older aggressive accumulation as is? Please advise if you’re able to. Thanks very much.

  3. Sage advice from Paul Simon:

    You Just slip out the back, Jack
    Make a new plan, Stan
    You don’t need to be coy, Roy
    Just get yourself free
    Hop on the bus, Gus
    You don’t need to discuss much
    Just drop off the key, Lee
    And get yourself free

    Also, advice from ray Charles:

    Hit the road Jack and don’t you come back no more, no more, no more, no more.
    Hit the road Jack and don’t you come back no more.

  4. oc,

    That’s a good question. Frankly, I think any of the approaches you outlined would be perfectly reasonable. (Remember, asset allocation is not a precise science.)

    To make the change gradually, I think the easiest way to do it would probably be to start making new contributions to an all-in-one fund with a more conservative allocation.

  5. I was forced to transfer by my office from sharebuilder/tradeking all to fidelity and I couldn’t believe that most of my cost basis was not brought over – I had to do a lot of it by hand. So, before shutting down with Edward Jones I’d be sure to try and gather as much info as you can!

  6. I just did this. I left Scottrade for Vanguard and it was a very simple and painless process. I just went online and pre-filled a 4 page form on Vanguard, called ahead to my local bank who provided the Medallion Signature Guarantee for free, and then mailed the completed form to Vanguard.

  7. @Bob, Paul Simon’s approach is great! Sounds like this reader is on the right track. You are ultimately responsible for your financial future and commissions are taking money out of your pocket. I haven’t used a traditional broker in decades. The discount brokers are also competent to answer simple investing questions and are paid a salary, not commissions. Of course, Mike’s advice is on target.

  8. I am about to leave broker and head to green pastures myself. I am just fearing the paperwork. Good idea about the cost basis and collecting the info before you leave.

  9. Thanks, Mike, for your thoughts on my question! 🙂

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