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What to Expect, and Demand, When You Await the ACAT
hether due to ill will or ineptitude, sometimes the transfer process does not go smoothly. The customer's former brokerage firm (the "carrying firm") delays, and that causes him, you and your firm (the "receiving firm") lots of headaches - not to mention lost revenue to you and your firm. Although the account transfer rules are complicated (and are contained in Rule 11870 of the NASD Uniform Practice Code and Rule 412 of the New York Stock Exchange Rules), brokers should know the basic rules of the game.
First, understand that the customer's account is not a pawn to be played in some larger battle between the carrying firm and the receiving firm. Quite to the contrary, the rules make it clear that the customer's interests are paramount. Upon written notice to the receiving firm by the customer of his intention to transfer his account, both firms "must expedite and coordinate" the transfer.
Second, upon receipt of the transfer instruction, the receiving firm is obligated "immediately" to submit the transfer instruction to the carrying member. From that point, the carrying member has only three business days to respond. The carrying member must respond by validating and returning the transfer instruction (with an attachment reflecting all positions and money balances as shown on its books), or by taking exception to the atransfer instruction. If there is an exception, the rules require that both the carrying member and the receiving member "promptly resolve" the exceptions.
Third, the time frames discussed do not apply to assets that are "nontransferable", which include assets such as proprietary products of the carrying member, assets of a third party (such as a mutual fund) with which the receiving firm does not maintain a relationship sufficient to receive and carry the asset, and limited partnership interests in retail accounts. Under these circumstances, the rules require that the carrying member must request further instructions from the customer (in writing and prior to or at the time of validation) and must provide the customer with options for the disposition of the nontransferable assets. In the event that the customer chooses liquidation as the option, the carrying member must distribute the cash balance to the customer or must initiate the transfer within five business days following receipt of the customer's disposition instructions.
Fourth, with respect to retirement plan securities accounts, it is the responsibility of the receiving member to obtain the approval of its custodian/trustee accepting the account before submitting a transfer instruction for such an account to the carrying member or its custodian/trustee. If outstanding fees are due to the custodian/trustee, such fees must be deducted. If the account credit balance is insufficient to make this deduction, assets in the account must be liquidated to satisfy such fees. If the assets are insufficient to pay the fees, such fees then must be transferred to and accepted by the receiving firm as a debit item with the account. Fifth, upon validation of a transfer instruction, the carrying firm must "freeze" the account to be transferred. That means that all open orders, with the exception of options positions expiring within seven business days, must be canceled and no new orders may be taken. However, customers wishing to buy or sell during this freeze period may be given an opportunity to do so by, for example, informing the client that he can rescind the transfer instruction by submitting a written request to cancel the transfer.
Sixth, the carrying member may take exception to the transfer instruction only upon a limited number of bases. These are such matters as: additional account documentation is needed (such as death or marriage certificates); the account number is invalid; the client rescinds the instruction (discussed above); mismatches of social security numbers, tax identification numbers, account titles or account types; missing authorization signature; or the customer has taken possession by way of direct delivery. Note that the carrying member cannot take an exception based upon a dispute over securities positions or over the money balance in the account. In these cases, the carrying member must transfer the securities position and/or money balance reflected on its books for the account.
Finally, within four business days following the validation of the transfer instruction, the carrying firm must complete the transfer of the customer's account to the receiving firm. "Immediately" both firms then must establish fail-to-receive and fail-to-deliver contracts at then current market values and the receiving or carrying member must debit or credit the related money amount. At this point, the customer's account shall be deemed transferred.
Knowing these basic rules of the game can make your life (and that of your client) a bit less anxious during the transfer process.
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