Our investment advice? Make sure you understand the forms

Perhaps the most fundamental piece of investment advice you will ever receive 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 investment advice, of course, but it’s important to keep in mind, especially when doing things like opening an investment account, or transferring investments from one brokerage to another.

It’s something we take very seriously when we manage the portfolios of clients of our Successful Investor Wealth Management service. When we fill out account transfer forms, we make sure that each form is checked and double-checked by two different people in our office, to avoid costly mistakes.

Simple oversights can be costly

A common error is to confuse the “in kind” and “in cash” boxes on account transfer forms. Our investment advice is that 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. This works against our investment advice for a couple of reasons.

You have to transfer some securities “in cash,” such as in-house mutual funds and savings accounts. But whenever possible, the best investment advice is to transfer 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 them any commissions. Better to let the new broker make the trades, since that’s who you’ll be dealing with in the future.


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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.

Keep a close eye on your life-insurance forms

Another piece of investing advice we would offer is to check 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 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 receive the proceeds of the policy.

Happily, the eldest child recognized the mistake and immediately 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. Many families have been torn apart irrevocably by smaller amounts than the payout on the average Canadian life-insurance policy. That’s why you’ll always want to take a moment and be sure the form is correctly filled out before you sign.

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