Is It Time to Switch Online Stock Brokers?

Investing for beginners usually starts with a seemingly simple step: Choosing an online stock broker. But when do beginner investors know when their broker isn’t doing right by them? To some extent, online brokers provide a commodity service, much like cable television or cell phone service. Sure, there may be differences in the speed at which your trade is executed or, in some cases, the exchange through which your trade is routed. But generally speaking, buying 100 shares of IBM through Etrade is the same as buying 100 shares of IBM at SoGoTrade. Or is it?

As the industry has consolidated and pushed commissions down to almost nothing (indeed, in some cases, commissions are nothing, discount brokers have worked hard to differentiate themselves on everything from customer service to website interface, trading platforms, research tools and even expert advice.

Some online stock brokers today look remarkably like full-service brokers, offering everything from financial planning services to full-featured cash management accounts, banking services, even estate planning and portfolio management services.

But just because your discount broker doesn’t offer these services, or you are paying more than $10 a trade, doesn’t mean you should necessarily switch.

The key is figuring out which discount broker meets your needs best.

Online Brokers Should Meet Your Needs

Do you trade frequently?

Low commissions will be very important to you, but so will… speed of execution, web site reliability and perhaps the ability to trade from multiple platforms (e.g., handheld wireless device, stand-alone software, telephone, etc.).

What if you’re a buy-and-hold investor who only makes a few trades per year?

You want a decent price on commissions, and you want to look carefully at the fees your broker charges.

Low-commission discounters that charge a lot of fees are rarely worth it for inactive investors.

What if you’re the kind of person who likes simplicity?

You want to keep everything in one place.

Then you’ll need an online broker that offers stocks, bonds, mutual funds (preferably a large selection of no-transaction-fee funds) and perhaps other services, like banking, annuities, college savings accounts and life insurance. (Are you sure you’re getting the service you deserve? Learnmore here.)

And of course, everyone wants (and frankly, deserves) web site reliability, ease of navigation and good customer service.

If your discount broker isn’t set up to meet your individual investing needs, it’s time to switch.

Does Your Online Broker Really Want You?

Keep in mind that many online brokers are really targeting just one type of investor, say the active investor or the options trader.

These tend to be the brokers that advertise super low commissions.

Those low commissions attract all investors (hey, everyone wants a good deal), but cheap commissions are meaningless if you’re a buy-and-hold investor and you have to pay a $50 annual inactivity fee or a $30 IRA custodial fee to trade 3�4 times a year.

If that’s the case for you, switching is the right move.

Or say you’re an active options trader, but you were lured to a discount broker who advertised ultra-low commissions.

Problem is… those commissions don’t apply to you, because you trade options, and this broker has a totally different commission structure for options. Again, it’s time to switch.

Is Your Online Stock Broker Living Up to His Promise

Other reasons to switch include poor customer service (nobody picks up the phone no matter how long you wait or when you call), difficulty accessing the web site, confusion navigating the web site or limited trading platforms.

If the only way to trade is online — you can’t even do telephone trading or broker-assisted trading if you want to, even if it means paying more — it may be time to switch.

Whether it’s a high volume of trading activity on the broker’s web site, or you’re having a thunderstorm and you’ve lost Internet access, a lot can happen to prevent you from being able to trade online.

You want to know you can at least talk to the broker on the phone if there’s a problem.

Finally, if you’re getting nickeled and dimed to death with fees for everything from paper statements to switching out of mutual funds too quickly, it’s time to switch.

How to Move Your Brokerage Account in 5 Simple Steps

Transferring a brokerage account seems a little intimidating to many investors. But if you are in an unhappy brokerage relationship, don’t let the paperwork scare you. Whatever your reasons for leaving, it’s easy to get it done if you know the right questions to ask.

There are two general ways to transfer one account to another broker. If your current account is all in cash you will probably have an easier time with a check or wire transfer. However, if you have open positions and don’t want to close them, it gets a little (but not much) more complicated.

Securities brokers have a process called ACATS (Automated Customer Account Transfer Service) that is managed by the NSCC (National Securities Clearing Corporation) for moving open positions and cash from one broker to another. An ACATS transfer essentially takes your account from one broker and replicates it, including your open positions, with another broker.

Tip #1: Let your new broker handle it. The ACATS process can be initiated by your new broker. They want your business and are motivated to make sure the transfer is done quickly and smoothly. Typically, your new broker will ask you to fill out a transfer form with the details about your old account. That form may be online or one they will ask you to fax back to them. It authorizes them to initiate the transfer without you having to talk to anyone at the old firm.

Tip #2: The new account must be a mirror image of the old one. It’s important to make sure your new account looks exactly like the old one: That means that if it’s a joint account, your old account must be a joint account. If you used your middle initial in the title of your old account, you will need to use that middle initial again. If you had an IRA in the new account, you must use the same type of IRA in the new account. Essentially, you are trying to create a mirror image of your old account with your new broker.

Tip #3: The transfer process can take several days. Keep in mind that the ACATS process can take several days, and it is not uncommon (although they won’t admit it) for your old broker to drag their feet a little. During the transfer process you will have limited or no access to your open positions. For long-term traders, this is probably not a big deal, but short-term traders may want to make sure they have appropriate risk coverage or have exited open positions.

Tip #4: Your old broker will charge you for this service. To add insult to injury, your old broker can charge you for initiating an ACATS process. Most of the time, this fee is between $50-$100 per account. However, this may not be an issue at all. Keep in mind that your new broker wants your business. It is very likely that they will reimburse you for this expense, but you have to ask for it. Don’t hesitate to find out whether they will cover these costs for you.

Tip #5: If you only have cash in your old account, it is quicker to just ask for a check Because the ACATS transfer process takes several days, it may be easier to just ask for a check or wire to be sent to your new account. The ACATS process is really designed for an account with open positions that you don’t want to close. It is always useful to remember who works for whom when you are working with your broker(s). Don’t be afraid to ask for things and to talk to your broker often. Use your new broker to take the pain and frustration out of the account transfer process and get on with your investing life.