Split Assets Between Two Firms?

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Gaston
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Split Assets Between Two Firms?

Post by Gaston » Thu Dec 11, 2014 2:38 pm

I've noticed that several individuals on this site make reference to splitting their assets between two firms (e.g., Vanguard and Fidelity) in order to avoid having all one's eggs in one basket. But help me understand a little better pls: What risk(s) does this help mitigate? Thx

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g$$
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Re: Split Assets Between Two Firms?

Post by g$$ » Thu Dec 11, 2014 2:47 pm

I could see doing this if you have a ton of cash and want FDIC insurance at more than one bank. Doing this for investments though seems silly to me. Consolidate your portfolio at one investment house and be happy with the simplicity.

livesoft
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Re: Split Assets Between Two Firms?

Post by livesoft » Thu Dec 11, 2014 2:52 pm

Several years ago, I was locked out of my accounts at Bank of America because of a mistake they made. I suppose some folks would have called that an emergency requiring the use of an emergency fund, but if your emergency fund was also at the same place then good luck with that. I used credit cards for those 3 weeks to pay for food.

I think that in today's age of cyber-crime, that it is prudent to be diversified. Some folks might say that increases your risk because now you have more than one financial institution that can be a target. However, it is not so much that you will lose money, but that you will locked out of your accounts for an extended period of time when you might want to get some money out.

Furthermore, it doesn't cost us anything to have something like VSS and VBR at Vanguard, at TDAmeritrade, and at WellsTrade. So diversification and redunancy are essentially free.

I think it is good to build in redundancy at points of failure. For instance, that's one reason why my spouse and I drive separate cars. If one of our cars breaks, we can use the other one in the meantime.
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FelixTheCat
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Re: Split Assets Between Two Firms?

Post by FelixTheCat » Thu Dec 11, 2014 3:06 pm

Gaston wrote:What risk(s) does this help mitigate?
Splitting assets between firms provides peace of mind against the theoretical doomsday. There is a wiki article that explains having all of your assets at Vanguard is fine.
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dbr
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Re: Split Assets Between Two Firms?

Post by dbr » Thu Dec 11, 2014 3:13 pm

My idea of the biggest threat is IT issues such as locked accounts, cyber crime, some sort of temporary internal breakdown at a company, etc. The recent thread about Vanguard telling someone that they didn't even exist at Vanguard as part of some kind of fraud prevention stupidity at Vanguard is an example.

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Orion
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Re: Split Assets Between Two Firms?

Post by Orion » Thu Dec 11, 2014 5:16 pm

A few years back my credit card was rejected. So I called in and found out the reason: They had no customer with my name. No customer at my address. No customer with my phone number. No card issued with the number on my card. And that's as far as I could get on the phone. So I went to the local branch where people recognize me and they got on the computers and recreated my existence with the credit card side of the bank.

So all was well after a few hours but that weird event makes me like to spread stuff around a bit.

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Re: Split Assets Between Two Firms?

Post by Call_Me_Op » Thu Dec 11, 2014 5:45 pm

Gaston wrote: But help me understand a little better pls: What risk(s) does this help mitigate?
Theft from your account.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

leonard
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Re: Split Assets Between Two Firms?

Post by leonard » Thu Dec 11, 2014 6:00 pm

Gaston wrote:I've noticed that several individuals on this site make reference to splitting their assets between two firms (e.g., Vanguard and Fidelity) in order to avoid having all one's eggs in one basket. But help me understand a little better pls: What risk(s) does this help mitigate? Thx
That would be a pain. All at VG.

"keep it simple" applies to your account structure - as well as the actual investments.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

dbr
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Re: Split Assets Between Two Firms?

Post by dbr » Thu Dec 11, 2014 6:05 pm

An easy way to split assets is to hold a 401K and a taxable brokerage account which would almost hardly ever be at the same firm. It might be a tiny reason to keep the 401K and not roll it over. For retirees with pension and/or SS and/or annuity the effect is the same as splitting among several firms. I would say consolidating all of one's income and liquid assets at one firm is a near impossibility.

subham
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Re: Split Assets Between Two Firms?

Post by subham » Thu Dec 11, 2014 6:16 pm

I was worried about trusting all my money with VG but this article gave me a lot of peace of mind.

http://www.bogleheads.org/wiki/Vanguard_safety

Also I have all my retirement with FD, so it seems i have some diversity across brokerages.

Louis Winthorpe III
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Re: Split Assets Between Two Firms?

Post by Louis Winthorpe III » Thu Dec 11, 2014 11:42 pm

livesoft wrote:So diversification and redunancy are essentially free.
There's a price in terms of simplicity. I value that more highly than many Bogleheads.
Call_Me_Op wrote:
Gaston wrote: But help me understand a little better pls: What risk(s) does this help mitigate?
Theft from your account.
Not sure that's possible in any practical sense. Someone would have to access your account and change your banking information without you knowing about it. Vanguard notifies you multiple ways if anything changes, and it prevents redemptions for some period after any such change.

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Re: Split Assets Between Two Firms?

Post by Wagnerjb » Fri Dec 12, 2014 8:23 am

dbr wrote:My idea of the biggest threat is IT issues such as locked accounts, cyber crime, some sort of temporary internal breakdown at a company, etc. The recent thread about Vanguard telling someone that they didn't even exist at Vanguard as part of some kind of fraud prevention stupidity at Vanguard is an example.
I agree with dbr.

When you are retired and living off your investments, even a temporary computer or cyber crime issue is a big deal if you cannot access your funds. I am not concerned that the money will vanish into thin air, but rather that I will be denied access for a short time while things are straightened out. Having two accounts reduces this risk.

Best wishes.
Andy

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Re: Split Assets Between Two Firms?

Post by placeholder » Fri Dec 12, 2014 11:10 am

Call_Me_Op wrote:
Gaston wrote: But help me understand a little better pls: What risk(s) does this help mitigate?
Theft from your account.
It reduces your max loss from any incident but actually increases the chance of a loss happening (not that it's high enough for me to worry about).

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Re: Split Assets Between Two Firms?

Post by placeholder » Fri Dec 12, 2014 11:12 am

leonard wrote:That would be a pain. All at VG.
"keep it simple" applies to your account structure - as well as the actual investments.
I have my assets split across several custodian (BTW it's not a pain for me) but not for security reasons but rather for bonus gathering so I split or consolidate holdings as needed to score the cash.

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Re: Split Assets Between Two Firms?

Post by leonard » Fri Dec 12, 2014 11:48 am

placeholder wrote:
leonard wrote:That would be a pain. All at VG.
"keep it simple" applies to your account structure - as well as the actual investments.
I have my assets split across several custodian (BTW it's not a pain for me) but not for security reasons but rather for bonus gathering so I split or consolidate holdings as needed to score the cash.
The bonus collecting is a hassle.

I believe that - on average - most investors are going to have a harder time rebalancing across and generally managing extra accounts. For me, it's simply not worth the hassle.

And, I think "keep it simple" applies here. But, I think you and I butted heads regarding the whole collecting of brokerage bonuses - so we simply disagree on the cost/benefit of doing that.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

placeholder
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Re: Split Assets Between Two Firms?

Post by placeholder » Fri Dec 12, 2014 1:48 pm

leonard wrote:The bonus collecting is a hassle.
That's your opinion and certainly not one that I share as I estimate my return from bonus gather to be on the order in $500 per hour of effort.
leonard wrote:I believe that - on average - most investors are going to have a harder time rebalancing across and generally managing extra accounts. For me, it's simply not worth the hassle.
I have a spreadsheet that tracks everything so I have no trouble managing my assets not to mention in addition to the multiple custodians I am a slice and dice investor so I have more holdings than even the usual person in that case.

flyingaway
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Re: Split Assets Between Two Firms?

Post by flyingaway » Fri Dec 12, 2014 2:06 pm

I have taxable accounts at both Vanguard and Fidelity with about equal amounts. When I started this, I was trying to compare the performance of funds at the two firms. Since I now have only index funds in the two accounts, that original intention lost meaning. I agree with the others that having accounts at different places (not too many) helps sleep better. However, I would not do that again, I now like simplicity.

Sagenick48
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Re: Split Assets Between Two Firms?

Post by Sagenick48 » Fri Dec 12, 2014 3:52 pm

I have accounts at three firms, USAA, Fidelity, and Vanguard. Since USAA and Fidelity now share back office processing the only difference is research and "extras". Each of them three has advantages and disadvantages. Since my accounts all receive the "highest" level of service at each (question, if I had say $100,000,000, would I get extra highest level of service, kinda like double secret probation?). I let them do the bookkeeping so there is no benefit in "simplicity." Taxes are done with turbo tax and it imports everything from all three sites.

By the way, to avoid the shut down problem, I always keep, a supply of cash at home in case something weird happens. My grandfather when I was 9 told me stores about 1933 when the banks were closed and people couldn't get money to buy groceries.
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Gaston
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Re: Split Assets Between Two Firms?

Post by Gaston » Fri Dec 12, 2014 4:26 pm

Thank you all! Appreciate the advice ...

Tier1Capital
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Re: Split Assets Between Two Firms?

Post by Tier1Capital » Fri Dec 12, 2014 4:43 pm

As mentioned earlier, splitting assets between two or more firms mitigates the risk of VG claiming you never had an account with them. Search for the posts where VG has done this to its customers, as a low-budget response to attempted fraud.

livesoft
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Re: Split Assets Between Two Firms?

Post by livesoft » Fri Dec 12, 2014 5:16 pm

I guess the average investor has already lost focus because they probably have a checking account, a work retirement account, and maybe an Ally account. That's already too much for them, so a Vanguard account would put them right into a tailspin of complexity. And if their spouse had a work account or an IRA, that would probably mean they would roll up into a ball and wish the world would go away. Thank goodness they don't have credit cards because that would be way too complex. And how does anybody manage to pay bills nowadays to different places like cell phone, electricity, water, mortgage, etc.?
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Re: Split Assets Between Two Firms?

Post by kolea » Sat Dec 13, 2014 12:02 am

I hope the best is answer is 'no' since I just consolidated to one firm.

I am not worried, but maybe I am naive. Seems like you if you worry about every calamity at some point you end up a paranoid survivalist.
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LeeMKE
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Re: Split Assets Between Two Firms?

Post by LeeMKE » Sat Dec 13, 2014 12:22 am

I have accounts at Fidelity and Schwab.

I do this in case of cybersecurity breach. If I can't get money from one while they are repairing a breach, I'll get money from the other.

I do this only for that reason. As I consolidated our accounts and simplified to 3 index funds, I got concerned about having everything in one place and sent a hunk to another house.
The mightiest Oak is just a nut who stayed the course.

leonard
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Re: Split Assets Between Two Firms?

Post by leonard » Sat Dec 13, 2014 12:25 am

livesoft wrote:I guess the average investor has already lost focus because they probably have a checking account, a work retirement account, and maybe an Ally account. That's already too much for them, so a Vanguard account would put them right into a tailspin of complexity. And if their spouse had a work account or an IRA, that would probably mean they would roll up into a ball and wish the world would go away. Thank goodness they don't have credit cards because that would be way too complex. And how does anybody manage to pay bills nowadays to different places like cell phone, electricity, water, mortgage, etc.?
Do you honestly think an unnecessary, extra brokerage helps that situation?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Ketawa
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Re: Split Assets Between Two Firms?

Post by Ketawa » Sat Dec 13, 2014 1:44 am

Brokerage bonuses are typically at least 20 bp. I just checked Fidelity and TD Ameritrade and they are over 20 bp at every level. It's actually even higher, since the lock-up is less than a year.

Bogleheads obsess over low ERs. Why not move your assets around and let brokerages pay you to invest?

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Re: Split Assets Between Two Firms?

Post by Call_Me_Op » Sat Dec 13, 2014 7:41 am

placeholder wrote:
Call_Me_Op wrote:
Gaston wrote: But help me understand a little better pls: What risk(s) does this help mitigate?
Theft from your account.
It reduces your max loss from any incident but actually increases the chance of a loss happening (not that it's high enough for me to worry about).
Yes, but twice a small number is still a small number. However, the difference between losing a fraction of what you have versus everything is enormous. What I really should have said is it mitigates the possibility of a total loss.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

livesoft
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Re: Split Assets Between Two Firms?

Post by livesoft » Sat Dec 13, 2014 9:00 am

leonard wrote:Do you honestly think an unnecessary, extra brokerage helps that situation?
Yes, definitely. The relatively minor increase of one more account in 20 is worth the big increase in risk reduction.

Another brokerage account might be likened to when folks say they keep cash, gold coins, or bullets around the house whether under the mattress or in a home safe. I don't keep things hidden at home myself, but I suspect the folks that do actually do not make any transactions with those items. It can be the same way with another brokerage account: Put some assets in the 2nd or 3rd brokerage account and make no transactions in that account. One can easily do all rebalancing in their work-horse accounts.
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Re: Split Assets Between Two Firms?

Post by Aptenodytes » Sat Dec 13, 2014 9:49 am

I don't know why this has to a source of argument. The benefits and costs can be tallied and individuals can make their own judgments. There's no need for anyone to decide what is best because nobody is empowered to do so.

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Re: Split Assets Between Two Firms?

Post by LadyGeek » Sun Dec 14, 2014 4:42 pm

I removed a few off-topic comments. As a reminder, see: Forum Policy
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Re: Split Assets Between Two Firms?

Post by DG99999 » Fri Feb 06, 2015 10:39 pm

I agree with some of the posters who state this is a personal decision that is difficult to argue - some value the redundancy as security, others prefer simplicity/etc.

I would add a couple others - first, having parallel accounts may be useful on RARE occasion to facilitate rebalancing. This would only be in the RARE event that markets move so quickly that two (opposing) rebalancing events occur within the frequent trader limitation time period. Second, if you are investing with a firm whose fund investment decisions are driven by top-down forecasts, then it might be wise to diversify the risk of a bad forecast - an example would be a particularly bad interest rate forecast that impacts returns at Firm A might be ameliorated by having half your investments at Firm B. Generally, this second point should not be applicable to index funds nor to Vanguard (due to its structure).
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.

leonard
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Re: Split Assets Between Two Firms?

Post by leonard » Sat Feb 07, 2015 12:17 pm

livesoft wrote:
leonard wrote:Do you honestly think an unnecessary, extra brokerage helps that situation?
Yes, definitely. The relatively minor increase of one more account in 20 is worth the big increase in risk reduction.

Another brokerage account might be likened to when folks say they keep cash, gold coins, or bullets around the house whether under the mattress or in a home safe. I don't keep things hidden at home myself, but I suspect the folks that do actually do not make any transactions with those items. It can be the same way with another brokerage account: Put some assets in the 2nd or 3rd brokerage account and make no transactions in that account. One can easily do all rebalancing in their work-horse accounts.
Interesting - fixing a complex situation by increasing complexity.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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