I love people who are loyal. They stick with you through good times and bad. Unfortunately, when it comes to business, loyalty is dead. Firms will spit you out at a moment's notice. Banks just move on to the next win once they've got you as a customer. This is why you shouldn't be afraid to transfer your capital for the rewards.
There is no loyalty when it comes to capital. Your goal should be to allocate your capital in as efficient a manner as possible. The more efficient your capital allocation, the greater your chance at financial freedom.
One of the reasons why I keep the comments section open despite the massive amount of spam I must wade through each day is that there are often nuggets of wisdom to be learned.
After publishing the educational post, how online brokerages make money if they cut trading fees to zero, one reader mentioned that Charles Schwab had a promotion where you could get $2,500 free if you move $1 million over to their platform. Not bad!
Then another reader chimed in that he came across a major trading platform with an even better offer. So I had to take a look.
Loyalty Is Dead: New Trading Account Promotion Bonus
Even though this promo isn't available any more, it's helpful to know what type of bonuses are constantly out there if you pay attention.
According to the trading website, you could get $12,000 in cash, gift cards, or products + a $700 cash bonus with a transfer by the deadline. Sweet!
There's just one problem, I don't have a spare $5 million lying around. Do you?
But it turns out, I just so happened to have a little over $1,000,000 available after transferring $1,000,000 to Wells Fargo to take advantage of its relationship pricing for a lower mortgage rate.
If I were to retransfer the $1,000,000 from Wells Fargo to the trading platform by the deadline, I could have made $3,000 in cash, gift cards, or products + $500 cash bonus. Better than a poke in the eye!
A $3,500 bonus would be great given that it would almost pay for two months of preschool. I'm on a mission to make an additional $2,200 a month to cover our new preschool + higher healthcare insurance costs.
By transferring over $1,000,000 to Wells Fargo, I was able to reduce my mortgage rate from 3% down to 2.625% on a $701,000 loan. That's a $2,629 a year interest savings. If I end up holding the loan for seven years given it is a 7/1 ARM, I'll end up saving around $17,000 in interest.
Therefore, the entire process of transferring $1,000,000 to Wells Fargo and then retransferring $1,000,000 from Wells Fargo to the trading platform would net me a handsome $20,500 in free money!
If you know of any even better online brokerage introductory rewards program, please share. Don't fall too much for bank loyalty.
Start Small And Work Your Way Up
The process of transferring funds to get sign-up rewards is very similar to signing up for new rewards credit cards to take advantage of bonus rewards.
Capital Transferring Tips For Free Money
For example, if you sign up for the Capital One Quicksilver Rewards Credit Card, you could earn cash back on unlimited spending plus a one-time cash bonus if you meet the promotion's minimum spending requirement on purchases within the first three months of signing up.
I know people who sign up for rewards credit cards every 3 – 6 months to take advantage of all the introductory offers. They'll end up with dozens of cards to keep track of, but at least they'll get lots of free cash and points. I used to do this in my early 20s, but I stopped once my company gave me an AMEX corporate card to spend on entertaining clients.
Transferring capital is next level rewards hunting because the dollar amounts are greater and you don't have to spend any money to get any rewards.
Just the fact that you have money allows you to earn free money. It's like finally getting recognized for practicing sound saving and investing habits.
Getting free money for having money is always great. It's like getting invited to the Oscars and then getting a swag bag with even more free goodies. This fact alone should incentivize you to save more aggressively.
1) Calculate how much time you'll need to spend.
However, here are some things you should consider before proceeding with transferring your capital:
It takes time to call an online brokerage and open up a $1,000,000 account. If you are transferring less than $1,000,000, you can usually open an account online with relative ease. The online brokerages are incentivized to get your money over as easily as possible.
According to the financial regulator, FINRA, individuals wanting to transfer their securities account from one broker-dealer to another must initiate the process by completing a Transfer Initiation Form (TIF) and send it to the firm to which they want to transfer their account. The firm a customer is transferring the account to can provide the form to facilitate the transfer. Once the receiving firm receives the TIF, it begins the process by communicating with the current or “delivering firm,” via ACATS.
The entire process generally takes about a week. I'm guessing you'll spend about 3 – 4 hours on the phone or online opening up the account, checking to see if the funds made it, learning how to use the new platform, setting up a link to your checking account so you can transfer future funds, and understanding where to get your tax documents.
Let's say you transfer $251,000 using the trading platform example. You'd get $1,300 in cash. If you end up spending four hours to transfer your funds and understanding the new platform, you've earned an effective rate of $325/hour. Do the math because time is money.
2) Make sure you are aware of all the terms. When I transferred money to Wells Fargo to get the better mortgage rate, I knew that as soon as the mortgage closed I could transfer my money elsewhere. For the new trading account bonus program, I think you need to keep your funds with them for one year. Read the fine print.
So far, I've heard crickets from my Wells Fargo wealth manager. She hasn't explained to me how much trades cost. She hasn't told me about any innovative new financial products. Nor has she reached out to have a deep dive conversation about my goals for my capital. Therefore, I have no problems transferring away the $1,011,754.
Consider matching your capital's investment style with the holding period required to get the rewards. In other words, if you must keep your capital with the new institution for a year, consider transferring only your long-term assets where you seldom make any trades. The holding period will feel less painful if the new institution isn't up to expectations.
3) Make sure the receiver has your cost basis for all securities. The cost basis is important for tax purposes if you ever want to sell a security. Transferring over the cost basis is normally a standard operating procedure, but again, best to double-check.
There was one year I received an erroneous $800,000 tax bill from the IRS because I had sold over $2,200,000 in stock and had forgotten to enter my cost basis for each trade! That was a stressful couple of months as I struggled to provide the IRS with the required information.
4) Make sure the benefits of the new online brokerage are just as good if not better than the old one. The last thing you want to do is transfer money over and then have higher trading costs, poorer cash yields, higher expenses, worse customer service, less research, poor trading execution, and a slower platform. If you are an active trader, this stuff matters.
I'm an inactive trader who is almost always 100% invested. I learned my lesson over a decade ago that it's better to buy and hold for the long term. Therefore, I don't care how snazzy the new platform is, just so long as it works. Besides, to stay competitive, all the platforms are getting better.
We've already got free online trading. Now we're going to get higher cash yields and likely better new account bonuses. It's a war for assets!
5) Keep track of your capital. Those of you who are willing to engage in capital transferring likely have more complicated net worths than the average person. Therefore, it's important to update your net worth tracker accordingly. The only way to make proper financial decisions is if you know your entire net worth composition.
I've personally got over 30 accounts to track. Before leveraging the internet, I would sometimes forget to update one line item in my Excel spreadsheet or forget to add or subtract an account when needed. As a result, I've made suboptimal financial decisions.
6) Ask your existing institution for any deals. Presumably, over the years, you've been able to develop some goodwill with one or two institutions. If so, they'll probably want to keep you from moving your capital elsewhere. Ask to see if they have any freebies they can give you just for staying. If so, that might be an even better strategy.
If not, then move just enough capital where you still remain at a desirable customer tier. You don't want to downgrade yourself to the bottom of the rung again. You can always move your capital back to your favorite online brokerage once the conditions have been met.
7) Make sure you're getting the best offer! Financial institutions may have multiple introductory rewards bonuses at any given time. It's kind of like how airlines charge a different price for a similar seat.
For example, thanks to reader feedback, it looks like trading platform example had a $600 bonus reward, an up to $2,500 bonus reward offer, and an up to $12,700 bonus reward offer like I've shown in this post. There is a chance that not all roads lead to Rome.
If you decide to sign up for a new account anywhere, make sure you talk to a representative at the receiving institution and ensure you are getting the absolute best deal at the time.
8) Be aware of any outbound transfer fees. Financial institutions will sometimes charge a nominal fee for having them transfer money away. I've seen fees range from $0 – $75. The transfer fee will obviously cut into your free cash bonus. Therefore, either ask the financial institution to waive the fee or have the receiving financial institution cover the fee if there is one.
Never Turn Down Free Money
Ever since buying my first property, I've always told myself to always put in the effort to refinance if I could get at least a 0.25% lower mortgage rate with all costs baked in. The process is a PITA, but in the end, I've ended up saving over $150,000 in interest expense over 16 years.
Transferring assets to a new online brokerage for free money is a much easier process. We're talking 2-4 hours of effort and one week of waiting on average versus 6 – 12 hours of effort and 2-5 months of waiting to refinance a mortgage nowadays.
If you walk by a $20 bill on the ground, you're not going to ignore it. You're going to pick it up, count your blessings, and buy a loved one something nice. The same thing goes for taking advantage of introductory offers from online brokerages.
If you are investing for the long term anyway, you might as well optimize your capital and get there quicker.
There are always free money promotions every month. You just have to go out there and look. The best way I look to make money is through long-term arbitrage opportunities, such as investing in the heartland of America real estate where valuations are lower, growth rates are higher, and there is a multi-decade demographic shift towards lower cost areas of the country.
One of the best ways I've found to take advantage of this trend is by investing with a platform like Fundrise or Crowdstreet (for accredited investors). They offer commercial real estate opportunities around the country. Both are free to sign up and explore.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.