Account Transfers Between Broker-Dealers
When a customer wants to move their account from one firm to another, the transfer happens through ACATS (Automated Customer Account Transfer Service). The timeline and procedures are governed by FINRA Rule 11870, and this process is frequently tested on the exam.
What You'll Learn
- How ACATS transfers work and the key deadlines
- Valid exceptions the carrying firm can raise
- The role of transfer agents
- FINRA Rule 2273 requirements when a rep switches firms
ACATS Overview
- ACATS (Automated Customer Account Transfer Service) is the electronic system used to transfer customer accounts between broker-dealers
- Developed by the National Securities Clearing Corporation (NSCC)
- Governed by FINRA Rule 11870 (Customer Account Transfer Contracts)
ACATS Transfer Timeline
This timeline is one of the most frequently tested topics in this unit:
| Step | Timeframe | Action |
|---|---|---|
| Customer initiates | Day 0 | Customer signs a transfer instruction form (TIF) at the receiving firm |
| Receiving firm submits | Immediately | Receiving firm submits the transfer instruction through ACATS |
| Carrying firm validates | 1 business day | Carrying firm validates or takes exception to the transfer instruction |
| Transfer completed | 3 business days after validation | Carrying firm delivers account assets to the receiving firm |
| Nontransferable assets | 5 business days after disposition instructions | Carrying firm liquidates or distributes per customer instructions |
Total time from submission to completion: approximately 4 business days (1 day to validate + 3 days to transfer).
Think of it this way: The customer starts the process at the new (receiving) firm, not the old one. The old (carrying) firm then has strict deadlines: 1 day to confirm and 3 more days to deliver the assets. The customer never has to contact the old firm directly.
Exam Tip: Gotchas
- 1-3 rule: 1 business day to validate, 3 business days to complete after validation. If the carrying firm misses the 1-day validation window, FINRA may take disciplinary action.
- The customer initiates at the receiving firm, not the carrying firm. The receiving firm drives the process through ACATS.
Key Transfer Rules
- The carrying firm must freeze the account upon validation and cancel open orders
- The carrying firm cannot refuse or delay a transfer without a valid exception (e.g., signature discrepancy, missing tax ID)
- Nontransferable assets (proprietary products, limited partnerships) require the customer to provide written disposition instructions
- The receiving firm must accept or reject the entire account; partial rejections are not permitted
- Fail-to-receive contracts: 10 business days for most securities; 30 business days for certain securities (munis, mutual funds)
Exam Tip: Gotchas
- The receiving firm cannot cherry-pick. It must accept or reject the entire account, not just the positions it wants.
- Nontransferable assets are not automatically liquidated. The customer must provide written instructions on what to do with them (e.g., sell, hold at the carrying firm).
Transfer Agents
- A transfer agent facilitates the transfer of ownership of securities (name changes on certificates, recording new owners)
- Regulated by the SEC under Section 17A of the Securities Exchange Act of 1934
- Maintains records of security ownership and processes transfers, cancellations, and issuances
- Transfer agents are distinct from ACATS: ACATS moves accounts between broker-dealers, while transfer agents handle changes in registered ownership of individual securities
Exam Tip: Gotchas
- Transfer agents are regulated by the SEC, not FINRA. ACATS (account transfers between broker-dealers) falls under FINRA Rule 11870, but transfer agents answer to the SEC under the Securities Exchange Act.
FINRA Rule 2273: Educational Communication for Recruitment
When a registered representative moves to a new firm and contacts former customers, the recruiting firm must deliver an educational communication:
- Must be provided at the time of first individualized contact with the former customer (or with account transfer documentation if unsolicited)
- Applies for 3 months following the rep's employment start date
- Must disclose potential costs of transferring:
- Account transfer fees
- Different share classes
- Surrender charges on annuities or insurance products
- Differences in pricing and product availability
- Exemption: Not required if the former customer expressly states disinterest in transferring
- Does not apply to non-natural-person institutional accounts
Exam Tip: Gotchas
- The recruiting (new) firm sends the educational communication, not the departing firm. The obligation is on the firm that hired the rep.
- 3-month window. The requirement applies only during the first 3 months after the rep joins the new firm. After that, normal communication rules apply.
- Institutional accounts are exempt. Rule 2273 only applies to natural-person (retail) customers.