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should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 3:37 pm
by carminered2019
I have account with Fidelity, my portfolio is growing close to 3M and I am still transferring more $$ to Fidelity from EJ. I know Fidelity is big but should I be worried to having a lot of $$$ with one brokerage.


Thanks

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 3:51 pm
by Kagord
If it's in investments, I don't think there is much to worry about, ownership is in the underlying investment, and they can't borrow or use that under SEC rules. If it's all in cash, yeah, maybe some risk above FDIC/SIPC coverage. Fidelity has an additional 1 billion of protection (excess of SIPC) for you as well, so yeah, your are chump change on that policy if payouts are needed.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 4:05 pm
by ohai
I guess there's some tiny risk of John Corzine/MF Global type scandal and your money going somewhere else, even if temporarily. If it makes you feel better, you can put some money somewhere else.

I have more than $3 million in some brokerage accounts and it doesn't bother me though.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 4:11 pm
by tibbitts
vipertom1970 wrote: Wed Jan 15, 2020 3:37 pm I have account with Fidelity, my portfolio is growing close to 3M and I am still transferring more $$ to Fidelity from EJ. I know Fidelity is big but should I be worried to having a lot of $$$ with one brokerage.


Thanks
I think it's not unreasonable to split your money, although you are more likely to lose some of your money if you do. So it's a tradeoff.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 4:15 pm
by Horsefly
I've had well over $3M at Fidelity for something around 10 years now. I've never had any issue or concern.

Fact is, if I had spread my money around to several institutions, it seems like that would have increased the risk of something bad happening.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 5:46 pm
by SovereignInvestor
tibbitts wrote: Wed Jan 15, 2020 4:11 pm
vipertom1970 wrote: Wed Jan 15, 2020 3:37 pm I have account with Fidelity, my portfolio is growing close to 3M and I am still transferring more $$ to Fidelity from EJ. I know Fidelity is big but should I be worried to having a lot of $$$ with one brokerage.


Thanks
I think it's not unreasonable to split your money, although you are more likely to lose some of your money if you do. So it's a tradeoff.
Excellent point about being more likely to experience smaller loss. But if down to 500K it can be little or no loss.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 6:33 pm
by Goal33
vipertom1970 wrote: Wed Jan 15, 2020 3:37 pm I have account with Fidelity, my portfolio is growing close to 3M and I am still transferring more $$ to Fidelity from EJ. I know Fidelity is big but should I be worried to having a lot of $$$ with one brokerage.


Thanks
Depends on your expenses :wink:

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:11 pm
by illumination
I mean if Fidelity was running some sort of widespread fraud with regards to clients NOT owning the stocks and bonds they thought they owned, that would probably be a reset of the entire US economy. That's how big they are. At that point, everyone would be screwed.

I could see a case for being concerned of you had more "cash" than FDIC limits at an institution, but that's a different matter.

I will say, I never understood how Bernie Madoff got away with what he was doing. My only guess was he was saying his clients were in investments that couldn't be easily verified and accounted for by various agencies.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:15 pm
by Royal Blue
In 2018 they had 2.5 Trillion in AUM. I think you'll be fine.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:21 pm
by bampf
I wouldn't worry about it at all. Reply with your login details and certainly someone will check it out for you.

<I KID>.

But I have a serious point. I wouldn't be eager to share the amount you have and where you have it on an on internet. You are at risk of being social engineered. If you have ever affiliated your user name with your real identity somewhere, you could be exposed. Yes, there are lots of steps you would have to go through to make this happen. I would submit that the guys in cyber crime land have little better to do then to try and figure out how to hack your account and get your hard earned $. Be careful.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:27 pm
by Royal Blue
bampf wrote: Wed Jan 15, 2020 7:21 pm I wouldn't worry about it at all. Reply with your login details and certainly someone will check it out for you.

<I KID>.

But I have a serious point. I wouldn't be eager to share the amount you have and where you have it on an on internet. You are at risk of being social engineered. If you have ever affiliated your user name with your real identity somewhere, you could be exposed. Yes, there are lots of steps you would have to go through to make this happen. I would submit that the guys in cyber crime land have little better to do then to try and figure out how to hack your account and get your hard earned $. Be careful.
You're totally right, and I just realized how terrible my username is! Changing it ASAP.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:35 pm
by Financologist
There is no perfectly safe place for anything. Fidelity probably ranks pretty high though.

Good luck

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:36 pm
by bampf
BocaEli wrote: Wed Jan 15, 2020 7:27 pm
bampf wrote: Wed Jan 15, 2020 7:21 pm I wouldn't worry about it at all. Reply with your login details and certainly someone will check it out for you.

<I KID>.

But I have a serious point. I wouldn't be eager to share the amount you have and where you have it on an on internet. You are at risk of being social engineered. If you have ever affiliated your user name with your real identity somewhere, you could be exposed. Yes, there are lots of steps you would have to go through to make this happen. I would submit that the guys in cyber crime land have little better to do then to try and figure out how to hack your account and get your hard earned $. Be careful.
You're totally right, and I just realized how terrible my username is! Changing it ASAP.
Its a fairly serious point. OP, (pointedly not using your name), its pretty easy to find out where you live and what you like (assuming that it is the same person. Easy effort for potentially big reward.) Make it hard for the bad guys! 1970 sounds a lot like a year born or a significant event. No kidding folks. Be careful.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:37 pm
by fyre4ce
There could be some benefits to spreading the money around aside from asset protection, if different banks are offering "perks" for keeping assets. $75k or $250k with Chase to get Sapphire or Private Client benefits, $100k at Merrill Edge to get BofA rewards and bonus on credit card cash back, lots of brokerages offer mortgage rate discounts for having certain levels of assets...

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 7:44 pm
by Agent007
What I would worry about is the security of your account and your backup email. Invest in some 2 factor authentication and maybe a USB key. The last think you want is for someone to Take over your email, do a password recovery on fidelity, and then transfer money to someplace else.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 8:00 pm
by Gill
I’m also surprised at the humble-brag posters who jumped on the bandwagon stating they also have similar amounts at Vanguard.
Gill

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 8:05 pm
by dmcmahon
If you’re not already using it, try adding 2-factor authentication using VIP Access.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 9:03 pm
by Iridium
SovereignInvestor wrote: Wed Jan 15, 2020 5:46 pm
tibbitts wrote: Wed Jan 15, 2020 4:11 pm
vipertom1970 wrote: Wed Jan 15, 2020 3:37 pm I have account with Fidelity, my portfolio is growing close to 3M and I am still transferring more $$ to Fidelity from EJ. I know Fidelity is big but should I be worried to having a lot of $$$ with one brokerage.


Thanks
I think it's not unreasonable to split your money, although you are more likely to lose some of your money if you do. So it's a tradeoff.
Excellent point about being more likely to experience smaller loss. But if down to 500K it can be little or no loss.
That is assuming the greatest risk is broker fraud. I would guess that unauthorized access (including family members abusing passwords given to them) is the more likely problem. By spreading assets to 6 brokers, it makes it simultaneously harder to track what is going on and gives fraudsters six times the opportunity to social engineer a broker's customer service representative. Not to mention, you now have five more companies with your SSN and other private info sitting in a database waiting to be hacked.

Bernie Madoff is the only big broker that has managed to permanently lose customer assets in the last few decades. The other high profile failures, Lehman and MF Global eventually had a 100% recovery for their customers (in Lehman's case, my understanding is that the vast majority of customers weren't effected at all, as the brokerage itself was not insolvent and segregated funds were handled properly leading up to and after the parent company's dissolution). That there was a delay was unfortunate, but the vast majority of the funds were available within a few months. Keep in mind that SIPC covers $500K of losses, unlike FDIC, which covers $500K of assets. This means that on a $3M account, if there is an 80% initial distribution, your initial distribution, including SIPC advance would be $3M*0.8 + 500K = $2.9M.

I have mixed feelings about excess SIPC. On one hand, with the brokers anyone has heard of, a billion dollars is pathetically small and would barely make a dent in even minor losses. On the other hand, the underwriter is making a $600M-$1B bet against fraud at the broker which is a pretty strong incentive for them to audit and demand improvements to internal controls. I do not think it is a coincidence that the only excess SIPC insurance claim I have found reference to is Lehman (which only had a hold up for some accounts due to obscure legal tangling rather than due to obviously fraudulent activity). Neither Bernie nor MF Global had excess SIPC policies. Nor, best I can tell, did any of the few dozen obscure no-name brokerages that SIPC has liquidated in the last few decades. I suppose there is a first time for everything, but it does seem that the combination of regulators and underwriters breathing down brokers' necks results in an very safe system from broker fraud.

To be clear, this logic does not at all apply to banks and FDIC. Spread those assets around!

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 9:41 pm
by SovereignInvestor
Iridium wrote: Wed Jan 15, 2020 9:03 pm
SovereignInvestor wrote: Wed Jan 15, 2020 5:46 pm
tibbitts wrote: Wed Jan 15, 2020 4:11 pm
vipertom1970 wrote: Wed Jan 15, 2020 3:37 pm I have account with Fidelity, my portfolio is growing close to 3M and I am still transferring more $$ to Fidelity from EJ. I know Fidelity is big but should I be worried to having a lot of $$$ with one brokerage.


Thanks
I think it's not unreasonable to split your money, although you are more likely to lose some of your money if you do. So it's a tradeoff.
Excellent point about being more likely to experience smaller loss. But if down to 500K it can be little or no loss.
That is assuming the greatest risk is broker fraud. I would guess that unauthorized access (including family members abusing passwords given to them) is the more likely problem. By spreading assets to 6 brokers, it makes it simultaneously harder to track what is going on and gives fraudsters six times the opportunity to social engineer a broker's customer service representative. Not to mention, you now have five more companies with your SSN and other private info sitting in a database waiting to be hacked.

Bernie Madoff is the only big broker that has managed to permanently lose customer assets in the last few decades. The other high profile failures, Lehman and MF Global eventually had a 100% recovery for their customers (in Lehman's case, my understanding is that the vast majority of customers weren't effected at all, as the brokerage itself was not insolvent and segregated funds were handled properly leading up to and after the parent company's dissolution). That there was a delay was unfortunate, but the vast majority of the funds were available within a few months. Keep in mind that SIPC covers $500K of losses, unlike FDIC, which covers $500K of assets. This means that on a $3M account, if there is an 80% initial distribution, your initial distribution, including SIPC advance would be $3M*0.8 + 500K = $2.9M.

I have mixed feelings about excess SIPC. On one hand, with the brokers anyone has heard of, a billion dollars is pathetically small and would barely make a dent in even minor losses. On the other hand, the underwriter is making a $600M-$1B bet against fraud at the broker which is a pretty strong incentive for them to audit and demand improvements to internal controls. I do not think it is a coincidence that the only excess SIPC insurance claim I have found reference to is Lehman (which only had a hold up for some accounts due to obscure legal tangling rather than due to obviously fraudulent activity). Neither Bernie nor MF Global had excess SIPC policies. Nor, best I can tell, did any of the few dozen obscure no-name brokerages that SIPC has liquidated in the last few decades. I suppose there is a first time for everything, but it does seem that the combination of regulators and underwriters breathing down brokers' necks results in an very safe system from broker fraud.

To be clear, this logic does not at all apply to banks and FDIC. Spread those assets around!
Great info here. Concur on the underwriting component. The price would be sky high or unavailable coverage for firms too risky.

Wasn't there some recovery to Madoff victims though?

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 10:40 pm
by tibbitts
Horsefly wrote: Wed Jan 15, 2020 4:15 pm I've had well over $3M at Fidelity for something around 10 years now. I've never had any issue or concern.

Fact is, if I had spread my money around to several institutions, it seems like that would have increased the risk of something bad happening.
Yes, but spreading assets around lessens the impact of any one failure.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 10:43 pm
by beehivehave
"The way to become rich is to put all your eggs in one basket and then watch that basket."
Andrew Carnegie

Re: should I be worried with having over 3M at one brokerage ?

Posted: Wed Jan 15, 2020 10:44 pm
by student
The amount is fine as I believe Fidelity is safe. However, I would not put all the money in one place just in case there is a temporary issue and I cannot access my money.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Thu Jan 16, 2020 1:12 am
by smectym
Once an investor has a concern wriggling in his mind, he probably should act on it. OP should split his cash between 2 or 3 institutions. We juggle several brokerages as well as Treasury Direct and several banks: not that hard.

Investors should respect their own intuition. Seemingly needless precautions sometimes turn out to be prescient. And the mere act of taking precautions in one area of financial security sensitizes one to other potential threats: a great example being this thread; OP posted his concern about excessive concentration, and several replies flagged potentially more likely threats, which OP and others may now take steps to address

Re: should I be worried with having over 3M at one brokerage ?

Posted: Thu Jan 16, 2020 2:29 am
by iamblessed
I think that is fine but I would keep maybe one month expenses in a credit union checking account for a backup.

Re: should I be worried with having over 3M at one brokerage ?

Posted: Thu Jan 16, 2020 2:42 am
by Iridium
SovereignInvestor wrote: Wed Jan 15, 2020 9:41 pm Wasn't there some recovery to Madoff victims though?
Yes. Latest SIPC press release is that they have recovered 68% (https://www.sipc.org/news-and-media/new ... 20191218-2). My point is that Bernie is the only SIPC insured institution that anyone has heard of that is not going to get to a 100% recovery. Despite the scares related to MF Global and Lehman, those investors eventually recovered all their assets.

Edit: Another aspect of that 68% recovery is that it is based on the net deposits made by victims and not based on statement assets. Which caused a fair bit of trouble for Madoff victims that had withdrawn more from their accounts than they had deposited.