Diversification in trading companies (ETrade, Vanguard, etc)

[fireready]

Hey
Currently working, FIRE in three-ish years

We currently have all of our taxable accounts (and Roth) at Etrade which is soon to become Morgan Stanley.  Our 401(K) is with Schwab and our HSA is with TD Ameritrade which will soon be Schwab.  I also have an account directly with Vanguard that I have recently opened and am considering moving all future monthly investments into that account investing in VTI.
At Etrade our biggest account is all in VTI and I am getting nervous that Etrade has all of our taxable money available for FIRE.  What happens if Etrade goes under?  Has other financial difficulty?  We currently have $700K with them in various accounts.  My thought is to move all future monthly investments to Vanguard to spread out our risk.  Is this over thinking it?  Too many accounts can get a bit more confusing and harder to manage.
thanks

[fireready]

Well I just learned you can't set up for Vanguard to automatically invest in ETF's like VTI so I would need to choose a mutual fund like VTSAX instead which comes with a slightly higher expense ratio of .004 vs VTI at .003.  Probably just going to stay with Etrade for auto investing for now. Hope they stay strong! :)

[Rob_bob]

The investments you own at a brokerage are not assets of the brokerage.  If they went BK it might take awhile to move the investments elsewhere so it's good to have an emergency fund someplace else.

I have the bulk of my investments at one broker and don't worry about it but have money market funds and an old small Roth elsewhere.

[fireready]

Thank you for the reply.  I found similar answers yesterday after some more searching.  I do have one years of living expenses in CD's for situations like the one you described.  Again, thank you for the help.

[dandarc]

Well I just learned you can't set up for Vanguard to automatically invest in ETF's like VTI so I would need to choose a mutual fund like VTSAX instead which comes with a slightly higher expense ratio of .004 vs VTI at .003.  Probably just going to stay with Etrade for auto investing for now. Hope they stay strong! :)

Missing a zero - .0004 vs. .0003. Or 1 too many zeros - .04% vs. .03%.

Etrade is a reasonable choice of course, but the difference at that level of expense ratio is academic. With ETFs you'll pay the bid-ask spread (typically a penny per share for VTI), and there's a premium / discount to NAV that could cut either way when you buy / sell.

[reeshau]

"E*TRADE Securities LLC and Morgan Stanley Smith Barney LLC are members of SIPC.  SIPC protects customer accounts up to $500,000 (including $250,000 for cash only).

Morgan Stanley (ultimate parent) also maintains additional insurance with an aggregate firmwide cap of $1 billion for securities and a $1.9 million per client limit for uninvested cash. "

https://us.etrade.com/l/f/asset-protection

It is very common for brokerages to insure beyond the SIPC limits, because it is very common for customers tomhave accounts exceeding that value.

Banks, take note.

[MustacheAndaHalf]

"Morgan Stanley (ultimate parent) also maintains additional insurance with an aggregate firmwide cap of $1 billion for securities and ..."

Morgan Stanley has $1362 billion in assets under management compared to a maximum payout of $1 billion.  Unless 99.93% of their assets fit under SIPC protection, it's not enough.

I believe SIPC protection applies per ownership - two individuals and a joint account would each be protected by separate SIPC protection.  You might want to look into that.

Schwab charges $0/trade for VTI and other ETFs.