Whoops! Beware DIY account transfer costs

By Steven Lamb | November 15, 2012 | Last updated on November 15, 2012
2 min read

An advisor gained a client with a small online brokerage account. As a friendly gesture, that advisor agreed to cover the costs of bringing over the assets.

This situation is probably fairly familiar to any advisor who has migrated a frustrated DIY investor into their book.

In this case, there were the remnants of dot-com era IPOs—now a handful of four penny stocks—a couple of ETFs, and four mutual funds.

The transfer was from an RRSP to an RRSP, so there were no real tax considerations. The equity holdings would have cost $19.99 per trade, and the funds were all either no-load, or front- end, so the cost to liquidate the portfolio should have been $119.94. The “transfer out” cost was $125, for a total estimated cost of $244.94.

So what did the total bill come out to?

Would you believe $660.84?

Because the advisor had initiated the liquidation and transfer, the brokerage trades were considered as assisted, and the online transaction discounts did not apply.

The equity sales each racked up a commission of $64.99, although the discount brokerage did give the client a break on some of their leftover tech-crash losers: One holding was valued at $16.50, so the brokerage dropped its commission…to $16. Another was worth $42, and the commission was “cut” to $41.

Perhaps most surprising was the cost incurred on redeeming the mutual funds, which were all either no-load or front-end-load. The brokerage dinged the client $45 for three of the funds and nearly $84 for the fourth.

The out-of-pocket difference for the advisor was $415.90. Sure, it’s not going to break the bank, but keeping a handle on costs is always a good idea.

The lesson should be clear: When transferring a DIY client into your book, let them liquidate their unwanted holdings rather than doing it via transfer request.

Read: Costs bite into returns

Steven Lamb