Want to know how to switch stock brokers? Here’s a tutorial on what to do, how to prepare for a transfer and what to look for in your next broker.
The 2010s was a great decade for retail traders.
Discount brokerages eliminated commissions, software offerings improved, minimum deposits went down, and brokers made more products available.
Late 2019 was the real game-changer, when Schwab decided to follow in Robinhood’s footsteps and cut commissions to zero. They forced the rest of the industry, other than Interactive Brokers, to follow suit.
Because most discount brokers cut their commissions to zero, they’re all trying to compete for the new business by sweetening their offerings.
As a result, us retail traders have a lot of great choices for brokers and because of the frequent industry developments, we might want to change our brokers more frequently than we’re used to.
So this article will tell you everything you need to know about how to switch stock brokers. The different ways to do it, why you might want to do it, and where you might want to take your business.
How to Switch Stock Brokers: Two Methods
There are two main methods to change stock brokers: the ACAT (Automated Customer Account Transfer), or simply withdrawing your cash from your broker and depositing it into a new brokerage account.
Keep in mind that there are tax implications for liquidating your positions and opening a new account, so always talk to a financial or tax advisor before moving any money.
ACAT (Automated Customer Account Transfer)
The ACAT method is best if you have a large portfolio. It leaves your portfolio intact, allowing you to switch brokers without liquidating your portfolio.
So your securities are essentially transferred from one broker to the next without ever changing ownership. This is hugely beneficial because when you sell, you have to pay capital gains taxes on your gains.
Using an ACAT typically comes with a fee, though. Most discount brokers charge you between $50 and $100 to initiate an account transfer.
So, if you’re a short-term trader, it might make sense to just change brokers when all your positions are flat, rather than use an ACAT.
TopRatedFirms maintains a list of ACAT fees for major brokerage firms. It’s worth contacting your new broker to see if they’ll cover your ACAT fee.
Also keep in mind that the ACAT process can take several days. If you tied up most of your capital in the ACAT, you could be locked out of the market for a few days.