Thursday, April 23, 2009

Money is Like a Rope: Pull, Don’t Push

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 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.


  1. Very true. No need to sell everything to transfer either - making the transfer "in-kind" as opposed to "in-cash" spares redemption fees (which some new advisors don't tell you is an option). It can also save an unnecessary tax hit for taxable accounts.

    The new advisor is incentivized to promote an in-cash transfer because new up-front commissions could be generated all over again.

  2. Preet: That's a good point about the in-kind transfer. Of course, there may not be a new advisor for people who choose to try investing on their own with a discount brokerage account.

  3. I want to do this and move my funds from mackenzie into TD efunds but am finding it difficult to get any information on doing so from either institution (I have TD efunds setup already). Anyone ever do this?

  4. Novice: I haven't done this with TD, but my discount brokerage had a form available online called something like Authorization to Transfer Account. One time I filled this in with the help of a person at the local branch of the bank associated with the discount brokerage. Another time I filled in this form myself and sent it to the discount brokerage by fax. If you have a TD brokerage account, they must have some sort of number you can call to speak to a human for help with this.

  5. Last year, I transfered my account from E*Trade Canada to TD. Shortly after that, E*Trade called and offered $300 and free trades for a few months to switch back.

    I did so, but I am now considering changing back to TD, since their wash trades are automatic versus having to call in and speak to someone about having it done manually.

  6. Back to your cocktail party story yesterday, I think some may be reluctant to change because they trust their advisor/salesperson more than a stranger. After being with a salesman for a few years, they are lulled into a sense of security and trust of this person, who additionally is often a friend of relative.

    When I started investing with mutual funds, the market had a tendency to go up by 15% a year. A 2.75% MER is more palatable when you're still making 12% a year. Not so much when you've lost 25% in a short period of time.