Phone swapping, or telephone switching, is the process of transferring funds from one mutual fund or variable annuity to another of a similar type, using the phone as the medium. It allows investors to take advantage of changes in the market and can be done online or via landline.
Also known as phone swapping, phone swapping is the process of placing an order with a broker or dealer, using the phone as the medium. Typically, the order will involve the assets of a mutual fund or an annuity. When asked to explain telephone switching, the response typically involves explaining the strategy as a means of transferring funds from one mutual fund or variable annuity to one of a similar type, allowing the investor to maximize the potential return on funds invested in the two Funds involved.
The basics of telephone switching involve making a verbal request with a broker or fund manager. It is not unusual for the respondent to point out that one of the main benefits of this approach is that the investor can apply in a very short period of time, and that order can be executed within minutes of placing it. This means that the investor can take advantage of changes in the market that will allow those transferred funds to start generating a return immediately. While the process may save only a few moments, the difference in returns can be significant, depending on the movements that take place with the securities held in each of the two funds.
Today, sending requests of this type can be done online, through a secure connection between the investor and the company that actually executes the transaction. Depending on how the company has set up this interface, the actual execution may take a bit longer than making the phone call and speaking directly to the advisor. Even if there is no appreciable difference in the time it takes to execute the order, many investors find that communicating verbally with the advisor is more satisfying than submitting the request online.
Another reason telephone switching continues is that the process eliminates the need to be online at the time the request is submitted. This means that the investor can be in an area where wireless connectivity is somewhat unreliable and still reach a broker via landline and place the order. This advantage is often used as a means to demonstrate why phone switching can be as efficient in moving assets as any other method, and even more efficient in specific situations.
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