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Find a new brokerage: How to change brokerages

What is a brokerage account and how do you find a new brokerage?

What is a brokerage account? The definition of a brokerage account is a type of investment account that you can open at a licensed brokerage firm. It is an arrangement through which you deposit funds and then can place buy and sell orders for different types of securities.

To open a brokerage account, you will need to find a firm you like and trust. You might also want to find a new firm if you are unhappy with the current brokerage firm that holds your existing account. Here is a summary of the potential ways that you might get a new brokerage along with how to open a brokerage account.

Why do investors change brokerages, and what are the steps to take to find a new one?

Investors might want to change brokerages for several reasons. They might be unhappy with the way in which their funds are being managed. Brokerages typically charge fees to investors in exchange for providing them with access to the markets. These fees have fallen, but some brokerages still charge high fees for management and commissions. Changing brokerages might help investors to save substantial amounts of money over time.

The steps to take to find a new brokerage include the following:

  • Research brokerage firms
  • Identify brokerage firms that are reputable
  • Compare management fees and commissions
  • Decide whether you want a passive investment account or if you want to actively trade
  • Choose the firm that you think will meet your needs the best

Brokerage statistics

Brokerages are overseen by the Financial Industry Regulatory Authority, or FINRA. According to FINRA, the number of registered people and firms have fallen over the past few years. The organization currently regulates 3,726 firms and 630,132 registered representatives, which have declined from 4,146 firms in 2013 and 643,322 registrants in 2015.

FINRA’s statistics help investors to understand how many brokerages are available and to get a picture of the industry. The brokerage industry has become much more competitive with the emergence of negotiated commissions. This competition has led to the number of brokerages to fall.

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Types of brokerage accounts

There are several different types of brokerage accounts, including the following:

  • Cash brokerage account
  • Margin brokerage account
  • Full-service brokerage account
  • Discount brokerage account

A cash brokerage account is a type of brokerage account in which you may be required to deposit money or securities in full to pay for your trades by the time that they settle. A margin brokerage account is a type of brokerage account in which you might be able to borrow against different assets in the account to purchase securities, meaning that the firm is in effect providing you with a low-interest loan.

full-service brokerage account is a type of account that may have a dedicated broker assigned to the account’s owner. The account holder is able to talk to the dedicated broker at any time. The commissions and fees for these types of accounts may be substantially higher because of the additional services. Discount brokerages are primarily online-only firms in which you are able to take a do-it-yourself approach to investments.

IRAs and retirement accounts: Moving to a new brokerage

It is important to distinguish a brokerage account vs. IRA. An individual brokerage account is a taxable investment account while an IRA is a tax-advantaged retirement savings account. You are able to move IRAs and other retirement accounts to a firm. Unlike brokerage accounts, IRAs and retirement accounts are not taxable accounts. However, many brokerages also handle these types of accounts in addition to offering taxable brokerage accounts.

To roll over an IRA to a new brokerage, you can follow a few simple steps. You can begin by opening a new IRA account at your firm. You then contact the administrator at your old brokerage and ask for the funds in your old IRA to be sent to the one to fund your IRA brokerage account. You can also ask the old plan administrator to send you the funds to roll over an IRA, but you must deposit them into your new IRA brokerage account within 60 days to avoid paying taxes and penalties.

If you have a 401(k) account at your former employer’s plan, you can also roll over a 401 k to a new IRA. To do this, you need to open an IRA at your new brokerage. You will then need to contact the plan administrator of your 401(k) plan and complete paperwork to initiate the process. You can ask the administrator to complete a trustee-to-trustee transfer, which involves the plan administrator sending a check of the funds in your 401(k) to roll over a 401(k) to your new IRA.

Margin accounts: Moving to a new brokerage

To change brokerages with a margin account, you will need to contact the new brokerage and ask for a transfer initiation form. You can then complete this form, and the receiving firm will then contact your old brokerage through the Automated Customer Account Transfer Service, which is operated by the National Securities Clearing Corporation.

While the process of changing brokerages and transferring accounts is automated, it can be complex because of regulations and other factors. For example, your intended receiving firm might decline a transfer of your margin account if the quality of the securities that support your margin loan is judged to be poor. If the receiving firm approves the transfer, your old brokerage will deliver your funds to the new firm.

Cash accounts: Moving to a new brokerage

The process for changing brokerages with cash accounts works in a similar way. You can start by contacting the new brokerage to let them know that you want to change brokerages. You can open a new account and ask for a transfer initiation form. After you complete the form, the receiving firm will contact your old brokerage through the ACATS system to initiate the process.

If your receiving firm agrees to accept your account, the delivering firm will deliver your funds to your new financial brokerage. Even with the automated process, you should still expect the process to take about a week when you change brokerages.

Kinds of new brokerage

What are the different types of financial brokerages, and how do you move your accounts to a new brokerage?

There are several types of brokerages, including the following:

  • Discount brokerage firm
  • Full-service firm
  • Online brokerage firm

If you think that you might want to change brokerages, you may need to understand how to open a brokerage account. It might be a good idea to complete a brokerage account comparison so that you understand the level of service that might be offered and the fees and commissions that you might have to pay. You might also want to investigate the types of securities that you may be given access to when you find a brokerage that you think might work for you.

Discount brokers

discount broker is a stockbroker or firm that executes buy and sell orders at substantially reduced commissions. While a discount brokerage firm is cheaper, it generally will not offer investment advice.

Opening a brokerage account with a discount broker is fairly straightforward. You can do so by following these steps:

  • Contact the discount brokerage company;
  • Request a new account application form;
  • Complete the application and submit it;
  • Open your account;
  • Fund your account; and
  • Research and choose your investments.

Full-service brokers

The full-service brokerage firm definition is a firm that offers a variety of services in addition to executing buy and sell orders for their clients. They might also offer the following types of services:

  • Advice and research
  • Tax tips
  • Retirement planning
  • Estate planning
  • Portfolio management
  • Financial planning
  • Wealth management

Full-service firms charge fees that are substantially higher than discount brokers. While discount brokers might charge fees of $7 or less, full-service brokers might charge from $45 to $150 per trade.

Online robo-advisors

Online brokerage firms may use robo-advisors to provide investment advice and management services to investors who have online investment accounts. When you open an online brokerage account at a firm that offers robo-advisory services, the robo-advisor can provide you with financial advice based on mathematical algorithms.

Robo-advisors and online brokerage accounts have grown in popularity because of the growth of the internet and smartphone technology. The assets under management by online investment brokers are expected to grow at a CAGR of 23.2 percent through 2022.

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Things to look for in a brokerage

Before you change brokerages, you need to make certain that the brokerage company that you are considering for opening a brokerage account is legitimate. You can follow these steps so that you can avoid dealing with a less-than-reputable firm:

  • Do not change brokerages based on cold calls;
  • Make certain that the new brokerage will have a fiduciary relationship with you;
  • Conduct research before you get a new account to make certain that it is free of regulatory complaints;
  • Verify that the firm is a member of the Securities Investor Protection Corporation;
  • Regularly check your statements; and
  • Move your funds and complain if you suspect wrongdoing.

Brokerage validity check

There is an easy way to check the validity of a firm before you get a new account. FINRA offers a free broker check service. You are able to enter the name of the broker or of the firm.

The service will give you information about where the broker or firm is licensed and any complaints that may have been filed and substantiated against the broker or firm. It also lets you check to make certain that the broker or firm is registered as required by law.

Account transfer fees

Another thing that you should check is the account transfer fees that you may be charged when you want to move your funds to a different brokerage. Account transfer fees are fees that your current broker might charge to transfer your funds to your new firm. They can range as high as $125, so it is important for you to find out what they are.

Some online brokers offer reimbursements of these types of fees. You can check with the firm that you want to move your funds to in order to find out if it reimburses account transfer fees. You can also decide to liquidate and close your old account and then to open the new account with the money. However, you will need to make certain that this makes sense because it will result in a taxable event. If you have capital losses, it might make sense to close your account, liquidate it, and open a new account at a different firm.

Closeout fees

Closeout fees are another type of fee of which you need to be aware. Not all brokerages charge these fees, but some do. These are fees that your current firm might charge when you close your account with it.

Before you open a new account, it is important for you to learn whether you might have to pay closeout fees with your current broker or if your new firm might charge these types of fees if you decide to close your account with it in the future.

Accessibility

It is important for you to determine how accessible a brokerage is to investors. Ideally, a brokerage should make investing accessible to investors at all levels. Investment and finance terms should be clearly explained, and you should have the ability to either choose your own investments or to pick a portfolio of investments that has been created by experts for your risk tolerance and your goals.

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Take into account the type of investor you are

Determining what type of investor you are is important for choosing the type of account that you want to open and the securities that you might purchase. You need to figure out whether your risk tolerance level is conservative, moderate, or aggressive as well as whether you want to actively trade or passively invest.

Conservative

Conservative investors are people who are more risk-averse. You might be a conservative investor if you are nearing retirement and want to maintain the principal in your account. Conservative investors may hold more low-risk investments in their accounts such as CDs, bonds, and index fund shares.

Moderate

Moderate investors are people who can withstand some risk but who may have a shorter window in which to invest before they retire. A person who is moderately conservative may want to allocate their securities in a way that preserves most of their capital but that also helps them to hedge against inflation.

Aggressive

The primary objective of an aggressive investor is capital appreciation. Aggressive investors normally have long time horizons so that they can withstand the fluctuations in their accounts over time. An aggressive asset allocation would have more weight in stocks and less in cash and fixed income.

Active trader

An active trader is an investor who makes frequent trades and who actively researches in order to help them to make their decisions. Active traders generally have a goal to make as much money as possible in a short time period off of their investments. Active trading is much riskier than passive investing and may not offer the types of returns that you want over time.

Passive investor

A passive investor does not have the same time commitment that is involved with active trading. They may be more deliberate in the way in which they make decisions. They might give their money to a broker to invest for them and then simply sit back and let their money work for them. Passive investors do not make frequent trades and generally use a buy-and-hold strategy.

Transferring your funds

To transfer your funds to a new firm, there are a few steps that you will want to take. You need to retrieve and record the transaction history from your old broker. You will then go through the process that was previously described to initiate the transfer of your money through the automated process.

Retrieve/record the transaction history from your old broker

Start by retrieving and recording the transaction history from your old broker. You will need to provide your old account information exactly as it appears on your account statement.

You will need to attach a copy of your most recent account statement to your new application. If you do not include the information exactly as it appears on your old account, you might run into some delays in the transfer process.

Special consideration for retirement accounts

It is important to consider a brokerage account vs. IRA. An IRA is a tax-deferred savings vehicle that allows your savings to grow tax-free until you begin taking disbursements in retirement. This means that if you are wanting to transfer an IRA to a new firm, you need to make certain to follow the IRA rollover rules to avoid paying taxes and penalties.

Retirement brokerage accounts that include contributions that are made on a pre-tax basis will tax you at your ordinary income tax rate at the time that you make withdrawals. If you are younger than 59 1/2, you may also be assessed a 10 percent early withdrawal penalty. This means that you must follow the proper way to roll your funds over to your new account to avoid the penalties and taxes that you might otherwise have to pay.

How long does a transfer usually take?

Transfers of your funds are automated. However, there are factors that can cause delays or increase the time that it takes to transfer your funds. Many of the steps in the process can occur simultaneously. You should still expect the process to take at least a week before the transfer is completed.

Transfer of taxable accounts

If you plan to transfer a taxable account, it is a good idea to perform the accounts transfer well in advance of when you file your income taxes. This is because you will need to report capital gains or capital losses on your tax return. If you perform the accounts transfer too close to when you file your income taxes, your returns may be inaccurate. This might necessitate you to file an amended return, and you might be audited.

Benefits of M1 Finance

M1 Finance is an online brokerage that does not charge any fees and offers free brokerage accounts to investors. You are able to start using it today. It allows you to customize your portfolio however you wish or to choose from more than 80 different portfolios that have been created by experts and that are tailored to different risk tolerances, time horizons, and financial goals.

M1 Finance’s platform is designed so that investing is accessible to investors at all levels. Investors are provided with straightforward access to powerful automation to help to grow their money. The platform is intuitive and helps you to save time through automatic reinvestment and dynamic rebalancing.

Why choose M1 Finance?

M1 Finance is an online brokerage that allows you to invest without paying any management fees or commissions. The automated features allow you to keep your portfolio on track to reach your financial goals.16x

M1 also offers M1 Spend, which is an FDIC-insured checking account and debit card that seamlessly integrate with the current M1 application. It allows you to pay bills, direct deposit your paycheck, and spend your money with an M1 Visa debit card. M1 also offers M1 Borrow, which allows you to borrow up to 35 percent of your portfolio and to pay it back on your own schedule. To learn more about M1 Finance, call 888.714.6674 to speak to a customer service representative. You can also get started investing now by filling out your application for a free brokerage account.