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Kevin Greenard: Take care when switching financial institutions

There are various reasons why people change financial institutions, including a financial adviser who retires, investments that have to be consolidated and inadequate service, among others.
Kevin Greenard

There are various reasons why people change financial institutions, including a financial adviser who retires, investments that have to be consolidated and inadequate service, among others.

Whatever the reason, it is important you understand the process and your options.

A transfer begins with signing paper forms. The rest of the process is primarily electronic.

Canadian investors do not tend to hold physical certificates for the stocks and bonds they own. They are mainly held in electronic form with the Canadian Depository for Securities (CDS), 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, CDS is able to facilitate a quick transfer between institutions.

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 to allow 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 market. 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 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. 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. The types of investment products in your account will impact how long the transfer will take. The following provides a general overview:

  • Stocks and bonds are generally transferred between five to 10 business days. The Investment Industry Regulatory Organization of Canada (IIROC) has guidelines with respect to transfers between institutions. Transfers from non-IIROC member institutions may or may not observe similar guidelines.
  • Mutual funds from other financial institutions are generally transferred within seven to 12 business days from the time all necessary documentation is received.
  • Guaranteed Income Certificates (GICs) and Term Deposits are generally not transferable “in kind” (as is) prior to their maturity. Most GICs can be transferred in cash on their maturity. There are some exceptions. You will need to check the terms and conditions with the institution which issued your GIC.
  • Proprietary investments are those sold only by the relinquishing institution. Many of these investments may be nontransferable or non-redeemable which could delay the transfer of your account.

Many relinquishing institutions charge a fee, the cost of which may vary. Normally this cost is approximately $125 plus tax per account and some receiving institutions or advisors may reimburse these fees.

Transfers of registered accounts should always be done through a transfer form. Direct transfers of RRSP and RRIF accounts are allowed in the Income Tax Act. 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.

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

Mutual funds within registered accounts or taxable accounts are typically transferred in-kind. This is especially important if the funds have been purchased on a deferred sales charge (DSC). 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 DSC if the investment was redeemed.

Other important items to note:

  • 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
  • Mixture of in-kind and in-cash transfers is also possible by attaching a detailed listing to the transfer form
  • Before a relinquishing institution may transfer a RRIF they are obligated to pay you the minimum annual payment if it has not already been paid during the year
  • Adjusted book costs for non-registered accounts should always be verified after the transfer

We have helped many clients over the years consolidate from other financial institutions and have found that when you know your options and how the process works, it can help make the transition smoother and quicker.

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