You want to move your investments

Imagine your investment portfolio is managed by a financial advisor called Fairhaven Wealth. You’ve decided to transfer all of your assets to a new financial advisor, Griffin Black. Your portfolio is diverse and includes stocks, mutual funds, options, and an annuity. Who needs to be involved in the transfer process and why?

Your old advisor, your new advisor, and you

Of course, your old advisor, your new advisor, and you will need to be involved in the transfer process. Since financial advisors hold assets at a custodian for safekeeping, we’ll need to involve the custodians as well. In this example, let’s say your old advisor holds your assets at a custodian called TradePMR and your new financial advisor uses a different firm called SSG. Other custodians that are more well-known include Charles Schwab and Fidelity.

Introducing broker dealers vs. self-clearing broker dealers

TradePMR and SSG are custodians for your financial advisors, which mean they hold the assets in your portfolio. In general, custodians fall into two main categories. The first category is self-clearing firms, who handle their own trade execution and back-office functions internally. Examples include Schwab and Fidelity. The second category is introducing broker-dealers, who focus on client services while outsourcing trade execution and back-office operations to external clearing firms. TradePMR and SSG are both introducing broker-dealers, and their clearing firms are Wells Fargo and Pershing respectively.

The DTCC

One of the most important players involved in an account transfer is the DTCC (Depository Trust & Clearing Corporation), and specifically, two of its subsidiaries - the DTC (Depository Trust Company) and the NSCC (National Securities Clearing Corporation). Introducing broker-dealers and clearing firms maintain records of the assets you hold, but most assets are actually held at the DTC. This centralization streamlines the process of trading and safeguarding financial assets to reduce risks, improve efficiency, and lower costs across the entire market. Each clearing firm has at least one DTC clearing number, which identifies that firm with the DTC. For example, one of Wells Fargo’s main clearing numbers is 0141 and one of Pershing’s main clearing numbers is 0443. A full list of DTC members and their clearing numbers can be found here.

The NSCC runs a service called ACATS (Automated Customer Account Transfer Service) that allows all of its clearing firm members to perform customer account transfers among themselves. Two key pieces of information required for the asset transfer are the clearing numbers of both the sending and receiving firms. The instruction to transfer the assets usually comes from the receiving firm, so in our hypothetical example, the initial transfer instruction flows from Pershing to the NSCC (a subsidiary of DTCC) to Wells Fargo.

The DTCC plays a crucial role in the financial markets, and does more than we can fully cover here. For a deeper understanding, visit the DTCC's official website. Additionally, this primer offers a helpful overview of the DTCC's functions.

FINRA

FINRA (Financial Industry Regulatory Authority) is also crucial to the account transfer process by serving as the primary regulatory body, governing ACATS transfers through Rule 11870. This rule prevents your old clearing firm from giving you a hard time when you decide to leave, assuming all entities follow the proper procedures. According to the rule, your old clearing firm must respond to any transfer requests from your clearing firm that come through the ACATS system within one business day, and the transfer should usually be completed within three to five business days, depending on various factors beyond the scope of this article.

Transferring all your assets

Since we hold mutual funds, options, and an annuity in our portfolio, there are additional important entities that we need to involve.

Mutual funds

When transferring mutual funds, we must involve the mutual fund company because they must maintain their own records separate from the clearing firm. For example, if you hold Vanguard mutual funds, Vanguard needs to get instructed to re-register the mutual fund assets with the new clearing firm. Fortunately, this process of notifying the mutual fund company and updating their records can be largely automated as a part of ACATS.

Options

When transferring options, the Options Clearing Corporation (OCC), which acts as the central clearinghouse for options trading, must get notified. With ACATS, this can be automated as well assuming that both the sending and receiving brokerages are set up to work with the OCC.

Insurance (annuities)

Similar to mutual funds, it’s necessary for insurance companies to re-register their annuities during a transfer because they maintain their own records separate from the clearing firm. Conveniently, this process can also be largely automated with the help of ACATS. For this example, let’s say that our annuity was issued by MetLife.

Tying it all together

Let's wrap it up by tying all 12 entities together. As a reminder, you’re moving your entire portfolio of stocks, mutual funds, options, and an annuity from Fairhaven Wealth to Griffin Black.

1. Griffin Black initiates your transfer request through their introducing broker-dealer, SSG.
2. SSG passes this transfer request to their clearing firm, Pershing.
3. Pershing initiates an ACAT through the NSCC ACATS system, and that instruction is received by Wells Fargo. TradePMR and Fairhaven Wealth will see this request as customers of Wells Fargo.
4. Pershing and Wells Fargo send standardized messages back and forth through the NSCC, as dictated by the ACATS process to ensure the proper movement of the assets. FINRA monitors the process to ensure it’s followed correctly.
5. ACATS sends and receives the appropriate messages to and from Vanguard, the OCC, and MetLife as a part of the transfer.
6. The transfer completes after 4 business days at Pershing and SSG, and your new advisor Griffin Black can start managing your assets.

Wrapping up

This example illustrates the main entities involved in a US account transfer and explains their roles in the process. Ideally, the clearing firm should make it feel incredibly easy for the introducing broker-dealer, the financial advisor, and the end customer to perform an account transfer by handling all of the steps. If you work at a clearing firm and want help automating your account transfer process so your clients can have a better experience, please reach out, and we’re happy to discuss.

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