So you’re afraid to ask for your money back from your “finance guy” whose BMW lease payments depend on your fees?  Hah!  To transfer your accounts from one brokerage firm to another, you don’t even have to call your current advisor/broker.  And to the extent possible, I’d suggest avoiding it.  

The “receiving brokerage firm” (such as Vanguard) has an incentive to be as helpful as possible, whereas the company you’re leaving has an incentive to guilt you into staying.  If they do happen to call, don’t be swayed.

First, open an account online, choosing during the application process that you have accounts you want to transfer over.  The folks at Vanguard are helpful and don’t pressure you, so I suggest giving them a call and explain what you want to do.  Once you submit your account transfer form, the receiving firm will handle the process electronically with the transfer department at your old brokerage firm.  Your assets will show up in your new account within two weeks.

Getting a Medallion/Signature Guarantee:  Most brokerage firms will require a “signature guarantee” (sometimes called a “medallion guarantee”) on your forms. This is not the same thing as having your signature notarized, as it has to be done by certain employees of banks or brokerage firms.  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.

Always choose “in kind.”  I don’t trust the old brokerage to liquidate, because they will liquidate at prices that benefit them, not you, and generate a large tax bills.  Transfer everything in-kind, and then sell the assets yourself, when each is ready for harvesting, at prices that benefit YOU.

After everything is transferred over, you can go through the holdings one by one to see which ones should be sold immediately, which ones should be sold later.   Each holding sold will generate a “credit,” which can be used immediately to buy low-cost, tax-efficient ETFs or whichever balanced mutual fund you choose. 

What to sell immediately?  Those investments with any capital loss or a small long-term capital gain.  Also consider selling investments, regardless of the capital gain implications, if the high fees and high turnover have been causing the investment to suck.

What to consider holding onto?  Those investments with short-term capital gains or large long-term capital gains.  In the next market correction, you can sell these assets at lower prices and buy better assets.  This extra step will reduce the magnitude of your capital gains taxes.  

Keep track of your realized capital gains:  In your online brokerage account, you can keep track of your on-going “realized capital gain.”  The goal is to keep your total realized capital gain below $0.  (You can deduct up to $3,000 in capital losses on your taxes every year and carry over any additional capital losses into future years.)

For example, if you sell your 1000 shares of ABC Growth Fund at a loss of -$7,000 and sell your 800 shares of XYZ Growth Fund at a gain of +$3,000, you will have a net capital loss of -$4000.  You can deduct $3000 this year, and deduct another $1000 next year. 

— AK