If you have been with your broker for a while, chances are you have developed a good relationship with him or her. If he or she decides to change brokerage firms one day, you will most likely be asked to follow him or her to the new brokerage firm. A good relationship with your broker is a wonderful thing; however, it is not the only thing to consider when faced with the dilemma – should I stay or should I go?
Before you make a decision about transferring your account to your broker’s new firm, here are some things you should discuss with someone at your current firm or your broker:
Why did your broker switch firms? There are many reasons why brokers switch firms. For example the broker’s investment philosophy may align better with the new firm, management changes at the current firm may have created discord between the broker and the new manager, the broker may think the new firm has more attractive proprietary investment products, or the broker received an offer from the new firm that was simply too good to pass up.
Some reasons for a broker’s departure, however, may potentially be a cause for concern. Was an allegation of misconduct made against the broker that prompted a resignation? Was the broker “permitted to resign” in lieu of being terminated? Is the broker moving to a reputable FINRA member firm or a firm that is known to have regulatory problems of its own? Is the broker leaving to start his or her own firm (i.e., a firm with no track record and little capitalization if something goes wrong)?
Do financial incentives from the new firm create a conflict of interest for your broker? It is commonplace for brokerage firms to recruit new brokers away from other firms by paying financial incentives. If the incentive, however, is tied to the amount of customer assets the broker brings to the new firm, the broker may be less than objective when “selling” you on the new firm and suggesting that you transfer your account.
Are all of the holdings in your account transferable to the new firm? Some investment products are not transferable. If that is the case, you will be required to either liquidate those products or keep just those investments at the current firm. If you decide to liquidate, there may be taxes or other fees associated with the liquidation. If you decide to keep the non-transferable products where they are, are you going to be paying two sets of fees to keep both accounts?
What are the fees that you will need to pay if you change firms? You may be charged various fees by the current and new firms for closing, transferring, and opening an account. The new firm may have a different pricing structure than you are accustomed to and it may cost you more to receive the same level of service you are currently getting.
Does the new firm offer the same type of investment products as your current firm?
Every firm offers different products. If the new firm doesn’t offer the types of products you are used to, find out what it offers that is comparable.
In short, don’t blindly follow your broker. Do your homework first. Just because a new firm may be a good fit for your broker, it doesn’t mean the new firm is a good fit for you.