Customer Account Transfers (ACATS)

When a customer wants to move an account from one firm to another, the Automated Customer Account Transfer Service (ACATS) carries the transfer on a fixed regulatory timeline. The FINRA customer-account transfer rule governs the process for FINRA members; the MSRB municipal-account transfer rule runs parallel for municipal-securities accounts. The receiving firm initiates the request; the carrying firm controls the validation and completion clock.

What does the FINRA customer-account transfer rule require for ACATS transfers?

• ACATS: National Securities Clearing Corporation (NSCC)-operated electronic system used to transfer customer accounts between member firms
• Initiation: customer signs a Transfer Instruction Form (TIF) with the receiving firm (the firm the customer is moving to)
• The receiving firm electronically submits the transfer request to the carrying firm (the firm currently holding the account)

What Is the 1-Day / 3-Day ACATS Timeline?

Think of it this way: The receiving firm sends the request. The carrying firm has 1 business day to say "yes, this is our account, these are the positions" or "no, here is why we cannot transfer." Then the carrying firm has 3 more business days to actually move the assets. The full window is 4 business days when everything is clean.

Exam Tip: Gotchas

• The ACATS timeline is 1 business day to validate and 3 business days to complete. The full end-to-end is 4 business days under standard conditions. Do not confuse ACATS timing with T+1 securities settlement or the 7-day mutual fund redemption maximum under the Investment Company Act.
• The receiving firm initiates, but the carrying firm controls the clock. The validation and completion windows run against the carrying firm. A delay by the carrying firm is a direct violation of the customer-account transfer rule.

What Are the Permitted Exceptions to Validation?

The carrying firm may take exception only for these enumerated reasons:

• Additional documentation is required (for example, a death or marriage certificate)
• The account is "flat," with no transferable assets
• The account number is invalid
• The request is a duplicate
• The transfer violates the firm's credit policy
• The account holds unrecognized residual credit assets
• The customer rescinds the instruction
• The Social Security number (SSN) or Taxpayer Identification Number (TIN) does not match
• The account title on the TIF does not match the carrying firm's records
• The account type on the TIF does not match the carrying firm's records
• The TIF is missing or carries an improper authorization
• The customer has taken possession of the assets

Two things that are not enumerated grounds, and cannot be used to block validation:

• The representative's wish to keep the client. Losing a client is not on the list
• Position or money-balance discrepancies. These get reconciled after validation; they do not stop it

Exam Tip: Gotchas

• The carrying firm may take exception only for enumerated reasons. A carrying firm cannot refuse a transfer because the rep is losing a client; that would be a direct violation of the customer-account transfer rule and the FINRA fair-dealing rule.
• The rep at the losing firm cannot obstruct or delay the transfer. Even informal foot-dragging (returning calls late, requesting "extra paperwork" not required by the rule) violates the customer-account transfer rule when the TIF is valid on its face.

What does the MSRB municipal-account transfer rule require?

The MSRB municipal-account transfer rule is the parallel rule for accounts holding municipal securities, including 529 plans, Achieving a Better Life Experience (ABLE) accounts, and underlying municipals. After harmonization with the ACATS rule:

• Validate or take exception: 1 business day
• Complete transfer: 3 business days after validation
• Both parties (carrying and receiving) must expedite and coordinate the transfer
• Residual positions: for a minimum of 6 months after a whole-account transfer completes, each party must transfer residual cash or securities credits (late-arriving dividends, interest, fractional shares) within 10 business days after they accrue
• Fail contracts and close-outs follow MSRB procedures

Exam Tip: Gotchas

• Residual credits after a whole-account transfer must be passed along for at least 6 months, each within 10 business days after it accrues. The MSRB municipal-account transfer rule sets this for municipal accounts. The FINRA customer-account transfer rule sets the same duty when a whole-account transfer is accomplished outside a clearing agency (ex-clearing). The carrying firm does not get to "abandon" post-transfer residuals.
• The MSRB municipal-account transfer rule and the FINRA customer-account transfer rule are now harmonized on the 1-day / 3-day timeline. A 529-plan transfer runs on the same clock as an equity-account transfer.

How do Series 6 products transfer between firms?

Different Series 6 products transfer through different mechanics:

How Do Mutual Fund Shares Transfer?

• Generally transferable in kind through ACATS for funds in the carrying firm's selling agreements
• A nontransferable asset does not simply get liquidated. The customer must receive written disposition alternatives and make the choice:
  • For a proprietary product of the carrying firm: liquidation, retention by the carrying firm for the customer's benefit, or transfer physically and directly into the customer's own name
  • For a third-party product the receiving firm cannot carry: those same three, plus transfer to the product's original source, for example back to the fund company
• A firm that liquidates a nontransferable position without offering the choice has not met the rule
• Liquidation, when the customer chooses it, triggers a taxable event if the account is taxable

How Do Variable Annuity Contracts Transfer?

• Typically not transferred through ACATS in the same mechanical way as securities
• The contract remains with the issuing insurance company
• The "transfer" is a change of broker-dealer of record via insurance-company forms, not an ACATS transaction
• A 1035 exchange (the IRC's tax-free annuity / life-insurance exchange) is a different event: it is a tax-free swap into a new contract, involving surrender of the old contract and issuance of a new one at the same or a different insurer

How Do 529 Plan Accounts Transfer?

• Transferred via plan-administrator forms or ACATS, depending on plan structure
• Subject to the MSRB municipal-account transfer rule's timing and residual-position requirements

Exam Tip: Gotchas

• A 1035 exchange is NOT an ACATS transfer. The 1035 is a tax-free swap into a new variable annuity or variable life contract under the IRC's tax-free-exchange rules. It involves surrender of the old contract and issuance of a new one, handled through insurance-company forms. A "broker-dealer change of record" on an existing contract is a third, separate process.
• Proprietary-fund positions at the carrying firm often cannot move with the account. The customer cannot move a proprietary fund to a firm that does not have a selling agreement with that fund family, so the customer must choose to liquidate it, leave it at the carrying firm, or take it in the customer's own name.
• Liquidating a proprietary fund in a taxable account triggers capital-gain tax the customer may not have planned for. A well-prepared rep raises this issue before the customer signs the TIF.

What Should You Check on Exam Day?

• Can you state the ACATS timeline: 1 business day to validate, 3 more business days to complete, 4 days total?
• Do you know that the carrying firm may reject a transfer only for enumerated reasons like a mismatched SSN, not because positions do not match?
• Can you state that a nontransferable proprietary fund position requires the customer to choose among written disposition alternatives, not automatic liquidation?
• Do you know that residual credits after a whole-account transfer must be passed along for at least 6 months, each within 10 business days after it accrues?
• Can you state that a 1035 exchange is not an ACATS transfer, since it involves surrender of the old contract and issuance of a new one?