When a customer wants to move their account from one firm to another, the transfer happens through ACATS (Automated Customer Account Transfer Service). FINRA's customer-account-transfer requirements set strict deadlines for validation and delivery, 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
- The educational-communication 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's customer-account-transfer-contracts framework
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 the Securities Exchange Act's transfer-agent registration and supervision provisions
- 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's customer-account-transfer framework, but transfer agents answer to the SEC under the Securities Exchange Act.
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. The educational-communication requirement only applies to natural-person (retail) customers.