Author Topic: Diversifying brokerage companies  (Read 1022 times)


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Diversifying brokerage companies
« on: April 23, 2019, 03:29:00 PM »
Just curious if this is something people do or think about.  Right now I have my IRAs, taxable, checking and savings accounts at the same place.  It's nice because it's enough in total that I get preferential treatment when I talk to them.  I take all security measures I can (2-factor auth, etc), but I do worry about something either happening to that company, or my account getting hacked/identity theft and a single point of attack.

I've been thinking about transferring my Roth and Trad IRAs to Vanguard, which would help distribute things a bit.  Is this good practice, or even common?  Or do you not worry about it?

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Re: Diversifying brokerage companies
« Reply #1 on: April 23, 2019, 04:45:23 PM »
I take reasonable precautions myself (dedicated laptop that never leaves house/connects to outside wifi, have 2 factor/safeguard email and change passwords to both accounts and email every year or so).

^ this applies to any larger corporation (Fido/T Rowe)

You are 100% covered in the case of hackers/theft. It may be annoying to deal with the week or 3 of paperwork in the event that a hacker go into your account and cleaned it out, but they will make you whole as long as you didn't intentionally leave your laptop in a public place, with the site logged in and a pos-tit with your passwords to your email and accounts and additional notes on how to find your accounts and take the money out. You need to be responsible, but otherwise they are deeply invested (LOL) in monitoring stuff and alerting you the instant anything looks weird, so I have confidence that they have some really smart people working in their IT/security departments to watch for this type of thing as well.

If the company itself is to blame or goes under, then you're still covered through the federal programs like FDIC (for banks) and SIPC (for investments). What those mean is that if the company went belly-up due to mismanagement or it was discovered that some shady IT guy decided to funnel off your accounts and the resulting kerfluffle destroyed the entire company, you'd still get your money back (the FDIC coverage is for if in bank/savings) or investment amounts (SIPC).


4.  Vanguard is regulated by the SEC.

All of this, by the way, is also true of other mutual fund investment companies, like Fidelity and Price.  Those offered in your 401k are, in all likelihood, just fine too.  (If you have an employer sponsored retirement plan, like a 401k, that doesn’t offer Vanguard funds by all means invest in it anyway.  Especially if any company match contributions are offered.  Those are free money and an instant return on your investment.)

Now FDIC/SIPC protections generally only cover amounts up to 250K (for FDIC) and up to 500K for SIPC.

But Fidelity's site increases the coverage:

With our Customer Protection Guarantee, we reimburse you for losses from unauthorized activity in your accounts. We also participate in asset protection programs such as FDIC and SIPC to help provide the best service possible.

The SIPC will cover up to $500,000 in securities, including a $250,000 limit for cash held in a brokerage account.

In addition to SIPC protection, Fidelity provides its brokerage customers with additional "excess of SIPC" coverage. The excess coverage would only be used when SIPC coverage is exhausted. Like SIPC, excess protection does not cover investment losses in customer accounts due to market fluctuation. It also does not cover other claims for losses incurred while broker-dealers remain in business. For example, fraud claims would not be covered if the brokerage firm was still in operation. Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion. Within Fidelity's excess of SIPC coverage, there is no per customer dollar limit on coverage of securities, but there is a per customer limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry.

Both SIPC and excess of SIPC coverage is limited to securities held in brokerage positions, including mutual funds if held in your brokerage account and securities held in book entry form.


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Re: Diversifying brokerage companies
« Reply #2 on: April 23, 2019, 09:33:51 PM »
This is all great info, thank you!  Sounds like, depending on the brokerage and their additional protections or lack thereof, diversifying in $500k chunks may be prudent.


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