Found the brokerage bonuses threads at FWF immensely valuable, so hopefully this thread can serve to carry on the discussion.
Quoting the top/intro post from ProfessorEd:
There are a number of brokerage offers out there that provide bonuses for new accounts, and there are already threads discussing the Schwab and Ameritrade offers. However, there are others. Several of these require opening accounts in the hundreds of thousands. Since many lack this much money, they will be forced to decide which are worth doing. Unlike deals that involve only some time, when one is investing these sums, one likes to know the experience of others and whether there are any potentially expensive problems with any of these.
Thus, there seems a need for a single thread where these are listed and people can discuss the comparative merits of them.
Below are some I know of (I started with the list of brokerage deals at http://thefinancebuff.com and want to give them credit. They put some of the bigger ones in a nice table format, and provide links. (Although we are past the deadlines stated, I have discovered virtually all have been extended and are still in effect.) There is another list at http://www.maximizingmoney.com/online-trading-accounts-and-investment-brokerages/
If there is someone who was watched these offers for a while, it might be nice to know how often they are made, or extended. Many firms put short deadlines on their offers to motivate you to act now, but seem to keep extending the offer, or periodically make similar ones.
Is there any scope for “churning” in which you take an offer and then later repeat the offer?
Here are some general comments.
Offers of this type are attractive for the total money received. Positions have to be held somewhere, so why not where they can give you an extra $600 or so. The money is not really locked up, since you can take it out (and not get the bonus).
Any of the major brokerage firms provide a way to buy and sell Apple, Ford, the major exchange traded funds, bonds, and mutual funds, and there are not gigantic differences between them in what you can do and at what costs. However, with large sums of money involved, small percentage differences in returns, or fees, or details like returns on idle funds, or how fast they transfer assets in can have a significant impact.
For instance, the Schwab offer seems to require you to keep your money with Schwab brokerage, and does not provide for you to invest idle funds in Schwab bank, for a slightly higher return. (all of .15% in checking, and .25% in saving), much less move it out to a Credit union for a few days of higher interest.
If only enough funds or positions are moved to qualify for a bonus, one may have the trouble of having two (or more accounts),but one can try out another firm. One may discover advantages that lead one to stay with them, or move all of you funds. Over several years the benefits of the new firm could be worth several times the bonus (and of course, you may suffer disadvantages that exceed the bonus, if there are either costs in shifting the assets, or unanticipated problems with the new firm).
Some of the considerations include: How much return will be lost when the funds are tied up during the transfer? CREF tells me transfers should take 5 - 7 days for IRA’s. Firms will often close your positions out, and then hold the cash for a few days, and then mail the other firm the check. Your funds are likely to be out of the market for at least a few days. Just to illustrate the money that can be involved, if you believe you can earn 10% per year in stocks (a historical possibility) and are thinking of moving $250,000, this is $68.49 per day, and if you are out of the market for 7 days, this is $479.45, which is most of a $600 bonus. If you then try to bring the money back, there would be a similar cost. This makes some of these deals no longer look so attractive.
If you can transfer positions without fees, this may not be a problem. However, many IRA’s are in propriety funds which cannot be transferred. You may find out that the retail funds in a brokerage IRA are more expensive than the proprietary funds in some other plans. When large sums are involved, you should look closely at annual expenses.
Are there any adverse tax consequences? If you find you have to convert funds to cash for an easy transfer, this can create a capital gain, and possibly prevent you from receiving the long term capital gains rate.
, What will be the cost in time and money of learning new brokerage firm’s procedures? An active trader will be attracted by the offer of a large number of free trades, but if unfamiliarity leads you to make mistakes, it could cost you more than the value of the trades.
There may be hidden costs to closing accounts. Years ago I opened several accounts for bonuses, and found account closing fees that were inadequately disclosed.
Are you gaining or losing any valuable investment opportunities that are available only through certain firms (margin borrowing at better rates, the opportunity to trade Schwab ETF funds for no commission, etc.).
For instance, I have substantial money in the CREF Real Estate Fund, and currently if you take money out, they will not let you buy back in if your total position is over $150,000. I have found this a rather nice investment vehicle, and losing several years earnings from it could easily outweigh any small bonus from moving part of the investment elsewhere.