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Brokerage Transfer Bonus – Case Study

Brokerage Transfer Bonuses

I use the web site: Doctor Of Credit to figure out my bank and credit card bonuses. Recently, I’ve also discovered the Brokerage Transfer Bonuses.

Many brokerages will give you a bonus when you transfer money to their platform. There’s no down-side in transferring the money as the transfer of the security will be done in kind, which means you will not incur capital gains or losses.

Case Study

I will show you the steps I used to convert $200,000 from Vanguard VLCAX Mutual Fund to Merrill Edge ETF equivalent to make $1000.

As of this writing, Merrill Edge was offering a $1000 bonus if you bring $200,000 on their platform. 

In order to get a bonus, you will need to move your money from one brokerage to another.

There is the wrong way to do it and the correct way.

The wrong way:

  1. Sell your shares.
  2. Move the account.
  3. Buy new shares.

Why is this wrong?

  • By selling and buying, you are creating taxable events, triggering capital loss and capital gains.
  • By moving the money this way, you are staying out of the market for a few days, which may result in you missing gains.

The proper way:

  • Ask your brokerage to perform an ‘in-kind’ transfer. This makes it that your investment stays exactly the same, with the same cost-basis.

Can mutual funds be transferred in-kind?

  • Sometimes, but usually not. In this scenario, it is best to convert your mutual funds to the ETF version first. And then perform the in-kind transfer.

How to convert a Mutual Fund to ETF

Figure out what you want to convert. For example, we need to invest $200,000 in the new account in order to achieve the maximum bonus. It looks like we have the money in VLCAX to do it.

In Vanguard Brokerage Account, Click on Lot details to see the breakdown:

Now we need to do some math, but basically I am only interested in converting to ETFs the amount that will give me slightly over $200,000.I don’t need to convert everything. If you want, you can ask to convert everything.

You can read about the equivalent ETF at Vanguard:

VLCAX – Vanguard Large-Cap Index Fund Admiral Shares

In this case, the equivalent ETF is VV:

VV – Vanguard Large-Cap ETF

As of this writing, the popular Vanguard Mutual Funds and their equivalent ETFs:

Mutual FundETF

At this point, the next step is to call Vanguard on the phone to ask them to perform the conversion. Their phone number is: 877-662-7447

They have an automated response system, just say ‘ETF’.

It takes a few days to perform the conversion.

Once the conversion is done, you will see the ETF in your Brokerage Account.

Open an account at Merrill Edge

Open your new account at Merrill Edge by following the sign up bonus link.

Once your account has been approved, you can fund the account following the steps.

In Transfer, choose ‘Securities & Account’

  • Choose External Account
  • Type the name of the institution, in my case, Vanguard.
  • Choose the type of account, in my case, Individual
  • Then type in the account number.

Choose the destination account.

On the next screen, answer a few questions and make sure to not transfer the whole account by selecting No on Would you like to transfer your entire Vanguard Brokerage Services account?

Type the name of the securities you wish to transfer and their amount.

And confirm everything.

Checking the status of your transfer

On the Top Tabs, choose Accounts. 

Scroll down to your account and click Transfer in Progress.

Here is my transfer currently in progress:

The transfer completed a few days after.

If you had fraction shares, which is likely the case, then Vanguard will sell the fraction after the transfer is complete. You will get an email confirming the sale. In my case, 0.835 share of VV were sold. This will result in a small capital gain or loss. 

This sounds like a lot of steps?

It is. My philosophy is to measure the amount of hours I spent on this process. For example, if it takes me 3 hours in bookkeeping, thinking, researching, phone calls and filling forms, then it is the equivalent of being paid $333 per hour for this $1000 bonus, not too shabby if you ask me.

Keeping Track

I use Google Sheets to keep track of the current states of the bonus I am performing. I also use Personal Capital to keep track of the status of my accounts. Furthermore, I believe in diversification, while it does add more accounts to keep track of, it prevents you from putting all your eggs into the same basket.

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