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). 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

What Is ACATS?

• 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

What Is the ACATS Transfer Timeline?

This timeline is one of the most frequently tested topics in this unit:

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.

What Are the 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).

What Does a Transfer Agent Do?

• 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.

What Must the Recruiting Firm Disclose?

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)
• If the first contact is oral, the firm must tell the customer the educational communication will follow, and then deliver it within 3 business days (or with earlier transfer documentation, if that comes first)
• 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.

What Should You Check on Exam Day?

• ACATS clock: 1 business day to validate, 3 business days to complete after validation, 5 business days to dispose of nontransferable assets
• The receiving firm initiates; the carrying firm validates, freezes the account, and cannot cherry-pick a partial acceptance or rejection
• Fail-to-receive contracts: 10 business days most securities, 30 business days munis/mutual funds
• Transfer agents answer to the SEC, not FINRA, and are a separate concept from ACATS
• Educational communication: recruiting firm sends it, within the first 3 months, at first individualized contact; if that contact is oral, deliver within 3 business days; institutional accounts are exempt