Having more than $ 500k in brokerage (What to do)

[Keenobserver]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

[jebmke]

I use only one

[typical.investor]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

I don't worry about it.

The average failed broker recovery rates is well over 95%. So maybe if I get around $10M, I might start to worry.

Remember, the first line of defense is that your segregated assets get returned to you. The $500k coverage is for things that have gone missing.

And your broker may have additional insurance. Last I heard, no broker that carried additional insurance has ever gone bankrupt in a way that resulted in customer losses.

[DarkHelmetII]

What is the significance of the $500k? I assume this is something other than FDIC insurance?

[sd323232]

that is very good question! i never thought about it before. I mean what are chances vanguard will fail , but in 2008-2009 many companies failed.

[deltaneutral83]

What is the significance of the $500k? I assume this is something other than FDIC insurance?

OP is probably referring to he and spouse, so $250k + $250k.

[typical.investor]

that is very good question! i never thought about it before. I mean what are chances vanguard will fail , but in 2008-2009 many companies failed.

It's not about failing though.

It's only about failing and not having customer assets properly segregated from their own as required by regulation for easy return to you (or transfer to another broker).

Assets that are returned normally don't count against the $500k coverage limit.

[Jags4186]

that is very good question! i never thought about it before. I mean what are chances vanguard will fail , but in 2008-2009 many companies failed.

Even if a brokerage house fails, what you own didn't just disintegrate. SIPC will work to get back all of your money. For example, when MF Global went belly-up, SIPC returned 100% of money to investors (Although it took a good 4 or 5 years for it all to be returned). I've always thought of SIPC insurance as fraud insurance. SIPC wouldn't be able to recover all of your money in a Bernie Madoff situation, but if a Fidelity or TD Ameritrade went poof, you'd very likely be made whole.

[mptfan]

What is the significance of the $500k? I assume this is something other than FDIC insurance?

FDIC insurance does not apply to brokerages.

[Keenobserver]

So if I have over 500k in lets say Robinhood ( I dont think they carry additional insurance) I shouldnt really worry too much?

[Call_Me_Op]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

You are misinformed about SIPC insurance.

[gonefishing01]

I wouldn’t keep 500k in Robinhood for long, personally. But not concerned about having 1M+ accounts with Vanguard, Schwab, Fidelity, etc.

[CardinalRule]

What is the significance of the $500k? I assume this is something other than FDIC insurance?

FDIC insurance does not apply to brokerages.

True, except for cash swept into FDIC-insured accounts. The SIPC "guarantees" up to $500,000 per brokerage account, and I assume that the OP was referring to this.

[sschoe2]

Brokerage assets and fund assets are separate by law. So what are the chances Vanguard Total Stock Market fails? If it does you probably have bigger things to worry about like finding food and warlords with bats wrapped in barbed wire.

[MikeG62]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

Have more than $500K at two brokers (one is a full service broker where I buy my muni bonds and the other is Fidelity where I have my main brokerage and IRA accounts) and I am not worried about this at all. After all, my investments are not in the brokers themselves, but rather the broker is simply holding the underlying investments on my behalf. If something happened to either broker, I am am close to 100% certain as I can be that I will eventually be able to move my investments elsewhere.

[Keenobserver]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

You are misinformed about SIPC insurance.

Care to elaborate instead just telling me that I am misinformed? Wasted response, no offense.

[ChicagoBear7]

Here is a consumer friendly summary of SIPC coverage.

https://www.sipc.org/for-investors/what-sipc-protects

[CardinalRule]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

Have more than $500K at two brokers (one is a full service broker where I buy my muni bonds and the other is Fidelity where I have my main brokerage and IRA accounts) and I am not worried about this at all. After all, my investments are not in the brokers themselves, but rather the broker is simply holding the underlying investments on my behalf. If something happened to either broker, I am am close to 100% certain as I can be that I will eventually be able to move my investments elsewhere.

I'm certainly not worried about my exposure to Fidelity and Schwab (both well over $500,000), but a brokerage firm could fail and your assets could, theoretically, go missing during the liquidation process. That is what SIPC protects - the custody function. The risk is low with the big firms, but it exists.

https://www.sipc.org/for-investors/what-sipc-protects

[H-Town]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

I have accounts at 3 different brokerage firms for now. The risk is low, but not necessarily zero.

https://www.sipc.org/for-investors/what-sipc-protects

[Marseille07]

Do folks here keep more than $500k at one brokerage given you are insured only upto 500k? Do folks set up different brokerages? How do Boogleheads approach this?

I have accounts at 3 different brokerage firms for now. The risk is low, but not necessarily zero.

https://www.sipc.org/for-investors/what-sipc-protects

At some point we have to roll a dice and bet that they won't fail though. I can't imagine someone with 5M having 10+ accounts for this particular purpose.

[hi_there]

Internal fraud risk like MF Global seems generally small. There hasn't been a major event like that in recent memory that I know of. However, there have been recent digital security incidents that resulted in stolen fund, and this does argue for avoiding concentration of assets in a single brokerage. Besides that, you would probably want to make your best evaluation of the individual brokerages in terms of compliance and system maturity to further mitigate the risk.

https://www.bloomberg.com/news/articles ... taken-back

[jarjarM]

Internal fraud risk like MF Global seems generally small. There hasn't been a major event like that in recent memory that I know of. However, there have been recent digital security incidents that resulted in stolen fund, and this does argue for avoiding concentration of assets in a single brokerage. Besides that, you would probably want to make your best evaluation of the individual brokerages in terms of compliance and system maturity to further mitigate the risk.

https://www.bloomberg.com/news/articles ... taken-back

Interesting story, didn't see that one before. But accounts in start-up like robinhood probably do possess a different risk than said fidelity/schwab.

[hi_there]

Internal fraud risk like MF Global seems generally small. There hasn't been a major event like that in recent memory that I know of. However, there have been recent digital security incidents that resulted in stolen fund, and this does argue for avoiding concentration of assets in a single brokerage. Besides that, you would probably want to make your best evaluation of the individual brokerages in terms of compliance and system maturity to further mitigate the risk.

https://www.bloomberg.com/news/articles ... taken-back

Interesting story, didn't see that one before. But accounts in start-up like robinhood probably do possess a different risk than said fidelity/schwab.

Yes. If I were to objectify the quality of brokerage security, I would prioritize off the top of my head, that the firm should:

1) Have operated maturely for as long as possible, to give more opportunity to build controls and stress test systems
2) Be as large as possible in terms of AUM and headcount, as this would indicate a bigger and more developed compliance program
3) Have experience handling institutional sized accounts, as this tends to drive better service and higher accountability
4) Be backed by a large and well capitalized parent company, that will be more likely to absorb operational losses and treat errors seriously to mitigate reputational risk

[TomatoTomahto]

We do split up our brokerage between Vanguard and Fidelity, but not because of a protection limit. Every now and then, you hear of some situation where an account is frozen for a week or two. I want to have an alternate place to get at my assets in that case.