There is a right and wrong way of transferring shares from one broker to another. Do you know which one you’ve been using?

One of the most basic pieces of investment advice you’ll ever hear is to make sure you carefully read a contract and get clarification of anything you don’t understand before you sign.

Most investors are familiar with this advice, of course, but it’s important to keep in mind, especially when doing things like opening an investment account, or transferring shares from one brokerage firm to another.

Investing strategy: Be wary of the difference between “in kind” and “in cash” transfers

A common error is to confuse the “in kind” and “in cash” boxes when you’re transferring shares. In most cases, you’ll want to tick off the “in kind” box.

If you tick off “in kind,” it means you want the securities in the old account to be transferred to the new account. If you tick off “in cash,” it means you want the old broker to sell your holdings, then transfer the cash to the new broker.

You have to transfer some securities “in cash,” such as in-house mutual funds and savings accounts. But whenever possible, the best investing strategy when transferring shares is move all the securities to the new broker before you do any trading. Presumably, you are unhappy with the old broker, so you won’t want to give him or her any commissions. It’s a better investing strategy to let the new broker make the trades, since that’s who you’ll be dealing with in the future.

As well, you may not want to sell everything in the account, especially if that will force you to pay capital gains taxes. One thing that works in your favour, of course, is that it’s in the new broker’s interest to transfer “in kind.” But mistakes do happen.

Incorrect beneficiary information can cause huge headaches for your heirs

In addition to transferring shares, it’s a good investing strategy to periodically check (and update if necessary) beneficiary information on your registered accounts, including RRSPs and tax free savings accounts (TFSAs).

You’ll want to pay particular attention to the form that names, or changes, the beneficiaries of your life-insurance policies. Often, you’ll name a primary beneficiary (generally your spouse), and a secondary beneficiary (often your children) if the primary beneficiary is incapacitated or dies at the same time as you.

We once came across a case where the insurance agent mixed up the primary and secondary beneficiaries. As a result, instead of going to the bereaved spouse, the form said the eldest child was to get the proceeds of the policy.

Happily, the eldest child realized the error and agreed to sign the cheque over to the surviving parent, for whom it was obviously intended. But if the child had refused to sign the cheque over, the surviving parent would have had no recourse. The insurance company would have had to follow the instructions on the form.

Of course, most children will do the right thing in a case like that, but you have nothing to gain by putting them to the test. That’s why you’ll always want to be sure the form is correctly filled out before you sign.

Here are two tips for navigating the transfer of your wealth to your heirs:

1. Have a clear but flexible financial contingency plan: This will let someone you trust to take charge of your finances if necessary. It should include directives for transferring shares. However, it’s important to focus on finding someone you trust thoroughly, and to give that person as much latitude as possible.
2. Consider your heirs when making investment decisions: If you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs, it makes sense to invest at least part of your legacy on their behalf. That is, invest with their longer time horizon in mind, not yours.

For instance, if your heirs are in their 40s, your retirement investing should involve holding at least part of your portfolio in a selection of investments that would suit investors in their 40s. Of course, you’d still want to invest conservatively. But you would take into account the many years that 40-somethings have until they reach retirement age.

For instance, if your retirement investing includes holding your money in GICs for the last few years of your life, it will produce a minimal return after taxes. In fact, you may actually lose money after accounting for taxes as well as inflation.

After your death, it may take months or longer to settle your estate. After that, your 40-something heirs may need time to put your legacy to work, especially if they are inexperienced investors. They may have passed 50 by the time they get around to investing in a way that’s appropriate to their age.

Missing out on, say, three years of even moderate returns can take a big bite out of the funds they’ll have a few decades later, when it’s their turn to retire.

The alternative—leaving fixed instructions—introduces a random element that can only hurt you. After all, fixed instructions (such as “If I get sick, convert all my holdings into T-bills”) won’t add to your wealth. But they may turn out to be wholly inappropriate, and the person you put in charge will be confined by your instructions and unable to do anything different.

Transferring shares and the transfer of wealth to your heirs is a topic that needs to be looked at toward the end of your investment life and continually updated.

Has transferring shares been a seamless process for you? Do you have story you’d like to share? Tell us about your experience in the comments.