Change financial institutions carefully

There are many reasons a person changes financial institutions, including – a financial advisor retires, investments have to be consolidated or changed for a number of reasons or the service is simply inadequate.

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, 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.  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 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 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 10 – 25 business days.  The Investment Dealers Association (IDA) has guidelines with respect to transfers between institutions.  Transfers from non-IDA member institutions may or may not observe similar guidelines.
  • Mutual funds from other financial institutions are generally transferred within 5 – 10 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 its 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, non-redeemable or delay the transfer of your account.

An account transfer request may be rejected by the relinquishing institution for a number of reasons, such as, insufficient cash to cover fees, under-margined, outstanding short position or incorrect account designation.  If your transfer has been rejected for any reason by the relinquishing institution, they may return the transfer to the receiving institution unprocessed. When the reason for a rejection has been rectified, the transfer process will begin again and the relinquishing institution may then have 10 – 25 business days, from the date of receipt to process the transfer documents.

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 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 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.

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).  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 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, 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 schedule 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