Dangers of a Broker

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mikeguima
Posts: 104
Joined: Mon Aug 22, 2016 3:11 pm

Dangers of a Broker

Post by mikeguima » Tue Nov 14, 2017 4:48 pm

Hi everyone!

I'd like to ask you guys opinion on something.

So, when choosing a broker to buy my ETFs, I had the choice of normal, more expensive brokers, and one discount broker, which is around 10x cheaper than the average "normal" broker. Given that they charge so little, I started wondering whether or not they could have sustainability issues, even though they exist since 2008 and are gaining a very large base of clients.

That said, I started wondering: what would happen if the broker went bankrupt? Would there be any implications for my assets or would it simply be a matter of transfering my ETFs from one broker (the bankrupt broker) to another one?

Thanks!

Caduceus
Posts: 1459
Joined: Mon Sep 17, 2012 1:47 am

Re: Dangers of a Broker

Post by Caduceus » Tue Nov 14, 2017 5:03 pm

No broker is cheaper than Vanguard for Vanguard ETFs. It's free. Just choose Vanguard. Problem solved.

PFInterest
Posts: 393
Joined: Sun Jan 08, 2017 12:25 pm

Re: Dangers of a Broker

Post by PFInterest » Tue Nov 14, 2017 5:09 pm

why use a broker in the first place as already noted in 1st reply?

bloom2708
Posts: 2842
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Dangers of a Broker

Post by bloom2708 » Tue Nov 14, 2017 5:13 pm

Vanguard or Fidelity. Stop.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

livesoft
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Re: Dangers of a Broker

Post by livesoft » Tue Nov 14, 2017 5:14 pm

I think the OP is not in the US and so it may not be possible for them to use Vanguard or Fidelity as a broker.
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smesman
Posts: 62
Joined: Thu Apr 27, 2017 7:11 am

Re: Dangers of a Broker

Post by smesman » Tue Nov 14, 2017 5:34 pm

He lives is the Netherlands and I'm assuming he is talking about DeGiro which is waaay cheaper than any other broker.

Each broker holds the ETFs of their clients in a separate holding company so if they went bankrupt no-one could claim their assets. So yeah it would be a matter of transferring your ETFs to another company but I have no idea how it would go practically (e.g. do they have the infrastructure in place to handle all of their clients orders quickly?)

In the case of DeGiro, they are able to lend out your ETFs up to 30% though so if both their clients and they went bankrupt you might lose up to 30% with a "normal" account in the absolute worst case. I believe this lending out is how they make most of their money, apart from the cheap but high volume transaction fees.

mikeguima
Posts: 104
Joined: Mon Aug 22, 2016 3:11 pm

Re: Dangers of a Broker

Post by mikeguima » Wed Nov 15, 2017 6:32 am

Right. I'm in Europe (not in the Netherlands though) and I use DeGiro. It's much cheaper than any other broker in my country.
Each broker holds the ETFs of their clients in a separate holding company so if they went bankrupt no-one could claim their assets. So yeah it would be a matter of transferring your ETFs to another company but I have no idea how it would go practically (e.g. do they have the infrastructure in place to handle all of their clients orders quickly?)
By "no-one could claim their assets" you mean my assets would be safe until transferred?
In the case of DeGiro, they are able to lend out your ETFs up to 30% though so if both their clients and they went bankrupt you might lose up to 30% with a "normal" account in the absolute worst case. I believe this lending out is how they make most of their money, apart from the cheap but high volume transaction fees.
You're talking about basic vs custody accounts? Didn't know they could lend up to 30%. The suy assured be I'd always be able to sell my assets even if the short seller was defaulting because the broker would provide the asset for me (probably buy it to give be, changing the repsonsibility to their side). But yeah, if they go bankrupt at the same time...

alex_686
Posts: 2548
Joined: Mon Feb 09, 2015 2:39 pm

Re: Dangers of a Broker

Post by alex_686 » Wed Nov 15, 2017 10:46 am

mikeguima wrote:
Wed Nov 15, 2017 6:32 am
In the case of DeGiro, they are able to lend out your ETFs up to 30% though so if both their clients and they went bankrupt you might lose up to 30% with a "normal" account in the absolute worst case. I believe this lending out is how they make most of their money, apart from the cheap but high volume transaction fees.
You're talking about basic vs custody accounts? Didn't know they could lend up to 30%. The suy assured be I'd always be able to sell my assets even if the short seller was defaulting because the broker would provide the asset for me (probably buy it to give be, changing the repsonsibility to their side). But yeah, if they go bankrupt at the same time...
[/quote]

To this American eye this does not feel quite right. To an extent this happens in America, but the client has to have a margin account. That being said there are robust safeguards in place. Short sells must put up collateral and that collateral is marked to market daily. When Lehman Brothers went bust all of their brokerage clients were made whole. It was disruptive but there was no real concern about clients losing their money. While I don't know about European regulations that well they can't be that far out of whack.

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