Whoops! Beware DIY account transfer costs

An advisor I was speaking to recently told me a story about bringing on a new client. It was a small account and as a friendly gesture the advisor agreed to cover the costs of bringing over assets from an online brokerage account.

The account is probably fairly familiar to any advisor who has migrated a frustrated DIY investor into their book. There were the remnants of dot-com era IPOs—now a handful (4) of penny stocks—a couple of ETFs, and four mutual funds.

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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.

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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, you should probably let them liquidate their unwanted holdings rather than doing it via transfer request.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.