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Also known as phone switching, telephone switching is the process of placing an order with a broker or dealer, using the telephone as the medium. Typically, the order will have to do with the assets of a mutual fund or an annuity. When asked to explain telephone switching, the response usually involves explaining the strategy as a means of shifting funds from one mutual fund or variable annuity to one that is similar in type, allowing the investor to maximize the potential return on the funds invested in the two funds involved.
The basics of telephone switching involve placing a verbal order with a broker or the 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 submit the request in a very short period of time, and that order can be executed within minutes of submitting that request. This means that the investor can take advantage of shifts in the market that will allow those transferred funds to immediately begin generating a return. While the process may save only a few moments, the difference in returns may be significant, depending on what movements are taking place with the securities included in each of the two funds.
Today, submitting requests of this type may be done online, via a secure connection between the investor and the firm that actually executes the transaction. Depending on how the firm has configured this interface, the actual execution may take a little longer than placing the phone call and talking with the advisor directly. Even if there is no appreciable difference in the time needed to execute the order, many investors find that verbally communicating with the advisor is more satisfying that submitting the request online.
Another reason that telephone switching continues to endure 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 a landline and place the order. This advantage is often used as a means of demonstrating why phone switching can be just as efficient in moving assets as any other method, and even more efficient in specific situations.
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