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Kevin Greenard: Changing financial institutions is as easy as 1 2 3

The top 10 reasons for people to change their financial institution are: 1) lack of service 2) existing advisor is retiring 3) wanting to deal with an advisor with the correct licencing (i.e.
Kevin Greenard

The top 10 reasons for people to change their financial institution are:

1) lack of service

2) existing advisor is retiring

3) wanting to deal with an advisor with the correct licencing (i.e. wealth advisor versus portfolio manager)

4) underperformance of the investments

5) consolidation/simplification to one institution

6) wanting to lower account fees

7) poor communication/administrative errors

8) expanding investment options (i.e. ability to do investments outside of mutual funds)

9) better reporting (both online and physical statements)

10) failure to provide other related services (i.e. financial planning, estate planning, and risk management)

Whatever the reason for changing your financial institution, it is important that you understand the process and the steps. Below, we have outlined the process in three easy steps.

Step 1: Meeting with portfolio manager and sharing information

The first step in the process of changing financial institutions is to have a meeting with the portfolio manager (the “manager”) or wealth advisor (the “advisor”) that you would like to begin working with. To illustrate, we will outline the process that our team uses. During an initial meeting (either on the phone or in person), we will outline both the financial and personal information we require.

The financial information is relatively straight forward. We request your last monthly or quarterly investment statement for each account. In addition, you should gather any other pertinent financial information you would like to share. This provides us with a baseline for where you currently are with your investment portfolio.

The personal information required will be things such as: your name, birthdate, social insurance number, banking information, employment information, copy of identification, investment knowledge, etc.

The gathering of financial and personal information can be done in person, on the phone, or electronically. A member of our team will typically email a checklist of items required and assist with any administrative questions.

After we have both the financial and personal information, we also have a specific discussion about risk tolerance, time horizon, investment objectives, and cash flow needs. We also discuss the components of the Investment Policy Statement (IPS) and the Managed Portfolio Program (MPP) agreement.

Step 2: Opening accounts and signing forms

Once we have gathered the above information, and have had the required conversations, then the investment account(s) can be opened, transfer forms can be completed, and the IPS and MPP agreement can be finalized. New clients have the option to sign the documents in person, or we can mail the forms for signature, or obtain signatures electronically.

Transfer forms

Opening new accounts is required prior to moving your existing investments. The process starts with us sending the signed transfer form to the relinquishing institution (the financial firm you are leaving). If you have 4 investment accounts, you will have to sign 4 transfer forms – essentially one transfer form for each account. This transfer form will have both your existing account number and the newly opened account number, and must be submitted along with a copy of your most recent investment account statement. This form will also indicate whether you want your existing investments transferred in-cash or in-kind (i.e. as is).

In-cash transfer

Investments are generally transferred either in-cash or in-kind. In-cash means that all of your assets not currently held as cash are to be liquidated, sold or redeemed in order for your account to be transferred to the receiving institution in the form of cash. It is important to note that if you have indicated an “in-cash” transfer of your account, all trades will be executed at the market price via your existing firm. All trades will be placed on a best efforts basis subsequent to the receipt of the transfer form and may be subject to commission charges. Care should be taken to understand all fees and tax consequences for choosing an in-cash transfer.

In-kind transfer

In-kind means that you want the assets in the account transferred as is. If you hold investments and a cash balance, then the investments will be transferred as well as the cash balance in their current state, if the assets can be transferred. In certain instances, some assets are specific to a particular institution (for example, some mutual funds). These assets cannot be transferred in-kind and must be liquidated, sold or redeemed prior to being transferred. The time required to transfer an account depends on the types of investments being transferred. Different types of investments may transfer at different times. As an example, mutual funds may transfer on a different day than bonds or individual equities.

Timing of transfer

Most people do not hold physical stock certificates any longer. Nearly all investments are held in electronic form with the Canadian Depository for Securities (CDS). The CDS is a reliable depository, as it is subject to legislation and regulations under both federal and provincial jurisdictions. Because it acts as the principal depository for securities traded between investment dealers, the CDS is able to facilitate transfers very quickly between institutions. Once we submit the transfer form, the process typically takes five to ten business days for common shares.

Registered accounts

Transfers of registered accounts should always be done through a transfer form. Direct transfers of RRSP and RRIF accounts are allowed through the Income Tax Act. The Canada Revenue Agency has a transfer form (T2033), but most financial firms have their own, which ensures your RRSP or RRIF is not deregistered and that you are not taxed on any withdrawals. The receiving institution submits the transfer form, along with a copy of your last investment statement from the relinquishing institution.

Tax Free Savings Account

The Tax Free Savings Account (TFSA) is a registered account. Unlike an RRSP or RRIF account, there are no tax consequences for selling investments in a TFSA or liquidating the account. One might think they could simply liquidate the account at the relinquishing firm and ask for the funds to be transferred to their bank account. However, the TFSA rules indicate that if funds are withdrawn from the account, they are able to be replenished, but not until the next calendar year. As a result, we will almost always recommend that a transfer form also be used for the TFSA to avoid waiting up to 12 months to recontribute.

Non-registered accounts

Taxable accounts, including joint accounts, cash accounts, margin accounts and corporate accounts should generally be transferred in-kind. This allows the receiving institution and advisor time to gather information relating to your investments, such as the tax consequence for any sells that you make.

Avoid redemption charges

Mutual funds within registered accounts or taxable accounts should generally be transferred in-kind. This is especially important if the funds have been purchased on a deferred sales charge (DSC) basis. An in-cash transfer may result in the mutual fund company charging you fees to sell the funds. Transferring the funds in-kind allows the receiving institution to obtain information from the fund company. Typical information that is released to the advisor on record includes adjusted cost base, 10 per cent free portion (if applicable), matured units, final maturity date, and the deferred sales charge if the investment were to be redeemed.

Other important items to note

In addition to the above, there are several other noteworthy points to consider when changing financial institutions:

• Characteristics relating to your investments (deferred sales cost schedule, final maturity, adjusted cost base) remain the same once transferred;

• If your account holds individual equities, or insurance type products, then you should ensure that the receiving institution and advisor are licensed to trade these types of investments;

• Partial transfers are permitted by specifically listing the securities you wish to transfer;

• A mixture of in-kind and in-cash transfers is also possible by attaching a schedule to the transfer form specifying which assets you want transferred in-kind or in-cash; and

• Before a relinquishing institution may transfer a RRIF, they are obligated to make the minimum annual payment from the RRIF, if it has not already been paid during the year.

Step 3: Reconciling transfer and reviewing recommendations

As noted above, transfers typically take five to ten business days. Once the transfer is completed, we will request a copy of the final investment statements from the relinquishing institution. The purpose of this is to reconcile the transfer. We also ensure that all adjusted book costs for non-registered accounts are accurately stated and verified after the transfer.

While the transfer process is occurring, this is the ideal time to meet to review recommendations for the portfolio. If investments are transferring in-kind, then we will have buy, hold and sell recommendations. As well, we may like some of the underlying investments but for tax purposes may feel they should be held in another account. In this scenario, we would map out recommendations to structure the portfolio in a tax efficient manner. For further information on tax efficient portfolio structures, refer to our article written on July 26, 2019.

Many relinquishing institutions charge a transfer-out fee, the cost of which may vary. Normally, this cost is approximately $125 plus tax, per account, and would be indicated on the final statement. To ensure clients are not out of pocket for making the decision to move firms, we will reimburse the transfer fees for all respective accounts.

Changing financial institutions 10 ago would typically take six weeks, depending on the financial firms involved. Today, this process can be done in as few as two weeks. Once all information is obtained, forms signed, and we have the new client’s consent to proceed, the transfer process is straight forward.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management, with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at Call 250-389-2138.