If you try to move retirement savings from one institution to another the wrong way, you can encounter roadblocks, unanswered phone calls, and extended delays. Money has to be pulled rather than pushed.
In physics class, students are told that “you can’t push a rope.” This means that if your calculations result in negative tension on a rope, the rope goes slack rather than actually pushing. If you want to move retirement savings to a new institution, the best way to go about it is to have the destination institution pull the money away from the old institution.
Many people believe that to move retirement money out of a brokerage, they have to talk to their existing brokerage to have the money sent elsewhere. Unfortunately, the existing brokerage has little incentive to cooperate. They may try to pressure the client to stay and may try various delay tactics.
In yesterday’s discussion of what holds people back from making the switch to low-cost index funds, Mark Wolfinger at Options for Rookies suggested that some people would fear a confrontation with their existing financial advisor. I think Mark is right that many people would have this fear. However, it usually isn’t necessary to talk to your financial advisor to make a change.
By simply filling out a form at your new institution, you can instruct them to pull the money out of your old account. Your financial advisor may choose to contact you, but this has never happened to me. Every time I’ve closed down one account and sent the money to another, all I’ve had to do is fill out a form at the new institution.