IRA Transfer

Q.     My stock broker recently changed brokerage firms; she is now a vice president and I'm very happy for her.  She wants me to transfer my account to her new firm.  She says that a transfer won't have any tax consequences since the account is an IRA and I will save money because her new firms' annual custodial fee is $30 less than her old one.  She explained that I will need to sell some of my current mutual funds prior to transferring.  Some of them are "proprietary" but there won't be any surrender charge because they are "A" shares.  Some she wants me to sell are "B" share funds; these aren't performing well.  I really enjoy working with this broker but want to make sure I'm doing the right thing before I sign the transfer papers.  I don't completely understand the difference between proprietary, A and B shares, could you explain these?  What do yo think I should do, stay put or transfer?

A.     I can help you understand the costs of transferring to a new brokerage house, explain  proprietary, A and B shares but I can't determine how much the working relationship is worth to you.  Only you can make that decision.  Consider the following before you move your account:
  1.     Your broker is correct that a properly executed transfer of an IRA from one custodian to another will not be a taxable event but don't forget about other costs associated with the transfer.
  2.    The $30.00 savings in custodial fees at the new brokerage house is a plus.  In 10 years this is a $300.00 savings!  Ask your  current brokerage house about their future plans concerning custodial fees.  They may realize their fees aren't competitive and may have plans to announce a fee reduction.  If  they know you are considering transferring your account they may offer to reduce or waive your fee in an effort to keep your account.  If you discover fees are going to be reduced or if they offer to waive or reduce your custodial fee this savings becomes a non-issue for your decision.
  3.    "A share mutual funds have a front-end sales charge which you have already paid.  If you sell these and transfer cash to the new brokerage house, chances are, new investments will have another sales load.  Find out what replacement investments your broker has in mind for your new account before you transfer and ask about the fees associated with these new investments.
       Proprietary mutual funds are a family of funds managed by a particular brokerage firm.  These almost always have the name of the brokerage firm included in the name of the fund.  In the past few years, many brokerage houses have relaxed their policy concerning acceptance of other brokerage proprietary funds.  You may want to ask your broker if her new firm would consider accepting the funds you already own.
  4.    "B" share mutual funds have back-end sales or surrender charges levied on investors who sell shares soon after buying them.  The easiest way to determine your surrender charges on your "B" shares is to ask the brokerage firm or the mutual fund directly.  They will be able to tell you the current charge and the number of years you must own the fund until this is reduced to zero percent.  A typical surrender charge will be six percent the first year and gradulally decrease to zero over the next five to seven years.
       Most brokerage houses will accept "B" shares.  Make sure there aren't any better performing funds in this same fund family that would meet your portfolio objectives before you sell and incur a surrender charge.  You can move from one B share to another in the same fund family without charge.
  5.    If you decide to incur the costs of the transfer to continue your relationship with this broker , ask what her future plans are.  Is she planning another move soon?

Send questions to Holly Nicholson, CFP, JD, P.O. Box 99466, Raleigh, NC  27624  or go to her Web site, www.askholly.com. For private client issues call 676-2806.