Why You Need To Lock Your Brokerage Account Today

I need to talk to you about a security threat that has been making headlines recently. I’ve seen a couple of stories, and then the inevitable copycat stories, about a system called ACATS.

ACATS (sometimes just called ACAT) stands for Automated Customer Account Transfer Service. It’s an electronic system used in the brokerage industry that lets you move your money — your investments, your retirement savings — from one brokerage firm to another.

The problem? ACATS has such poor security that criminals are exploiting it to loot your account.

Once that money is stolen, it is unbelievably difficult, if not impossible, to get your own money back.

I’m going to tell you in the simplest terms how this works, and then I’m going to tell you the must-do step you need to take right now to protect yourself.

The ACATS Theft Scam: A Criminal’s Method of Operation

Criminals know so much about us because of all those various data breaches we hear about. They have your Social Security number, they know the challenge questions, and they have enough of your personal information to pull off an alarming impersonation.

Here is the step-by-step process of the ACATS theft:

• A criminal will open a new brokerage account — a “shell account” — under your name. Since you’re typically given time to transfer assets in, they open it with no money. It looks legitimate because they’ve used your stolen personal data to answer all the identity questions.
• Knowing you have a large sum of money invested at another firm, they initiate the ACATS transfer from the new shell account.
• Electronically, zoom! All the money in your existing brokerage or retirement account is moved to the new shell account that the criminal controls.
• The criminal then runs away with the money. All the money you’ve worked hard to invest over the years, poof, it’s gone.

The criminals move this money so fast that prosecution is incredibly difficult. They figure out the weak link — and right now, the ACATS system is it.

The good news is that many brokerages are aware of this problem and offer a lock to prevent these unauthorized transfers. You need to set one up today.

This is similar to what I’ve been recommending with SIM locks on your cell phone account. Remember how I told you to set up a lock with your cell phone carrier so a criminal can’t steal your phone number and take control of your two-factor authentications? Often, these two scams — SIM swapping and ACATS transfers — will work together. That’s why you need a lock on both your cell phone and your brokerage account.

My “Big Three” Brokerages

My three favorite firms — Fidelity, Schwab, and Vanguard — all offer this protection, but they do it a little differently:

Other Brokerages

If you have your money at a bank-based brokerage, or any other firm:

• Sign in to your account.
• Look for an option to lock your account from transferring to another firm. If you see a simple click-to-activate option, as Fidelity has, use it.
• If you don’t see the option, call them immediately. Ask a customer service person to put an ACATS lock on your account.

Final Thoughts

The ACATS system was designed to solve a problem. Decades ago, it was a huge headache when brokerages would illegally refuse to release your account to another firm when you wanted to move it. After a number of legal and arbitration actions, the industry developed ACATS to make moving your money efficient and easy.

Now, a system that solved an old problem for consumers has created a new, massive problem: the electronic theft of their money.

I know this gets into the realm of the paranoid, but you have to understand that once criminals figure out a method of operation, this becomes a real risk. This is already happening to people.

Take the time to do this today. If you ever do want to move to another firm, you can simply call and have the lock temporarily removed. Don’t wait until your life savings are gone.