When managing investments or retirement accounts, there may come a time when you want to move your assets from one provider to another. In many cases, this transfer can be done without selling any of your holdings. This type of transfer is known as an ‘in specie transfer.’ It allows you to move investments exactly as they are, without converting them into cash. Understanding how an in specie transfer works can help investors make informed decisions when changing accounts or consolidating portfolios.
What Is an In Specie Transfer?
An in specie transfer refers to the movement of assets in their existing form, without liquidation, from one account or provider to another. The Latin term in specie means in its actual form, and that is exactly what happens during this type of transfer. Rather than selling investments and transferring cash, you are moving the securities themselves such as shares, bonds, or mutual fund units directly into the new account.
Key Characteristics
- Assets are transferred as-is, not sold.
- No realization of gains or losses for tax purposes at the time of transfer.
- Commonly used for pension transfers, trust accounts, and brokerage transitions.
Why Choose an In Specie Transfer?
There are several reasons an investor may opt for an in specie transfer instead of a cash transfer. The most common motivation is the desire to avoid disrupting their investment portfolio or incurring potential tax liabilities. Here are some additional benefits:
Tax Efficiency
Since the assets are not sold during an in specie transfer, capital gains or losses are not triggered. This makes it a tax-efficient option, particularly for investors who would otherwise face a large tax bill upon liquidation.
Continuity of Investment
Investors do not have to exit the market or miss potential gains during a sale and re-purchase process. This continuous exposure to the market is particularly beneficial during times of volatility or growth.
Lower Transaction Costs
When transferring investments in specie, you avoid fees associated with selling assets (such as brokerage commissions or fund exit charges) and then buying them again in the new account.
How Does an In Specie Transfer Work?
The process of transferring assets in specie varies slightly depending on the financial institutions and the type of investments involved. However, the general steps follow a clear path:
1. Select the Receiving Account
Before initiating an in specie transfer, you must first establish the destination account. This could be a new brokerage account, self-managed super fund (SMSF), or another pension plan. The receiving account must be capable of holding the same types of investments being transferred.
2. Request the Transfer
You then submit a transfer request to the receiving institution. This request includes:
- Details of the account to be transferred from
- List of specific assets you want to transfer in specie
- Authorization for the receiving provider to act on your behalf
3. Verification and Matching Assets
The receiving and originating institutions communicate to confirm asset details. They must ensure the investments are eligible for a like-for-like transfer. For example, if the destination platform doesn’t support a particular fund or share class, it cannot be transferred in specie.
4. Transfer Execution
Once all details are confirmed and approved, the assets are moved over in their existing form. No sale takes place. The process duration can vary typically from several days to a few weeks depending on the asset type and institutions involved.
Types of Assets That Can Be Transferred In Specie
Not all assets qualify for in specie transfer. Generally, assets that are commonly held in brokerage accounts or retirement accounts and supported by both platforms can be transferred. These include:
- Individual stocks and shares
- Exchange-traded funds (ETFs)
- Mutual funds or unit trusts (if available on both platforms)
- Bonds and government securities
Assets such as private equity, foreign securities, or non-standard funds may not be transferable in specie and might require liquidation before moving the funds.
Important Considerations
Transfer Time
In specie transfers often take longer than cash transfers because they require coordination between institutions, especially when multiple types of assets are involved. Delays can happen if any of the assets are not eligible or if documentation is incomplete.
Valuation and Statements
During the transfer, you may receive statements reflecting the movement of assets. It’s important to check that the quantity and value of the holdings match your records once the transfer is complete.
Account Restrictions
Some retirement or pension plans have specific rules about in specie transfers. For instance, not all schemes allow partial in specie transfers; some may only accept a full portfolio move. Always verify these terms before initiating a request.
Potential Platform Fees
Some providers charge exit or entry fees for in specie transfers. These could be per holding or based on the value of the assets being moved. Review all fee structures beforehand to avoid surprises.
In Specie Transfer vs. Cash Transfer
It’s helpful to understand the difference between in specie and cash transfers when choosing the best option for your needs.
- In Specie Transfer: Investments move as-is; no selling; no tax realization; more complex and may take longer.
- Cash Transfer: Investments are sold, and proceeds are transferred as cash; simpler and quicker, but may result in taxes and loss of market exposure during the process.
When Should You Use an In Specie Transfer?
In specie transfers are ideal in the following scenarios:
- You want to switch providers without exiting current investments.
- Your holdings have appreciated significantly, and selling would result in capital gains tax.
- You are consolidating pension accounts but want to preserve your investment strategy.
- You’re moving to a self-directed investment account and want to retain your current assets.
An in specie transfer is a valuable financial tool that allows investors to move their investments between accounts or institutions without selling or triggering tax events. It offers continuity, tax efficiency, and potential cost savings, making it particularly appealing for long-term investors and those managing retirement portfolios. While the process may require coordination and can take some time, the benefits of preserving your investment holdings often outweigh the inconvenience. As always, consult your financial advisor or tax professional to ensure an in specie transfer aligns with your specific financial goals and circumstances.