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Brokerage firms are paying cash for your money

Brokerage firms are locked in a new war from which you may be able to profit. Many are paying good money if investors have substantial investments they are willing to move over to them. These include the likes of Schwab, Fidelity, E*Trade and Scottrade.

Schwab, for example, will pay up to $2,500 for moving investments or cash over. Their incentive schedule starts at $200 for moving $50,000 over and goes all the way up to paying $2,500 for moving a million dollars or more under their custody. Some of the larger brokerage houses are listed in the chart below.


In fact, more than a dozen brokerage firms are offering cash incentives to move investments over and the HustlerMoney Blog gives a great summary. Naturally, the firms generally want larger amounts of money, although TD Ameritrade is willing to pay for only $10,000 of new money.

I've looked over the rules of many of these incentive programs and they do vary. Most will take your assets in multiple forms rather than only in cash. They typically allow you to move over your current holdings, which you can do without paying taxes by doing a direct transfer known as an ACAT.

The brokerage firms each have rules for how long assets must be left in their custody, which is usually at least a year. Other rules may limit how many accounts can be moved over to get the cash reward. Finally, in most cases, the cash reward will be taxable and the firms will issue a 1099 to the IRS. For tax-deferred money, such as an IRA, taxes may not have to be paid. A Charles Schwab spokesperson noted they do not send out a 1099 for bonuses paid to tax-deferred accounts but suggests talking to a tax adviser.

My take is that though this cash incentive war can benefit consumers, be very careful. Read all of the rules and ask questions before making this money move.

Next, frame your decision against the amount you are moving over. For example, $2,500 is a lot of money but represents a bonus of only 0.25 percent on $1 million. Finally, remember that the goal of the brokerage firms is to make money from your money. Chances are they will be offering you products or services that will make them money.

If, however, you can resist some of the sales pitches, spending some time to make these moves may be worthwhile. Or, if you were thinking of changing brokerage houses, this might push you to make the change. Finally, in two cases, I've had clients tell me that their brokerage firm paid them to keep their money at their firm after they inquired about how to move funds to a different brokerage.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.