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

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

Post by 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by jebmke »

I use only one
When you discover that you are riding a dead horse, the best strategy is to dismount.
typical.investor
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Re: Having more than $ 500k in brokerage (What to do)

Post by typical.investor »

Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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.
Last edited by typical.investor on Wed Jan 13, 2021 8:41 am, edited 1 time in total.
DarkHelmetII
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Re: Having more than $ 500k in brokerage (What to do)

Post by DarkHelmetII »

What is the significance of the $500k? I assume this is something other than FDIC insurance?
sd323232
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Re: Having more than $ 500k in brokerage (What to do)

Post by 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by deltaneutral83 »

DarkHelmetII wrote: Wed Jan 13, 2021 8:40 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by typical.investor »

sd323232 wrote: Wed Jan 13, 2021 8:44 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by Jags4186 »

sd323232 wrote: Wed Jan 13, 2021 8:44 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by mptfan »

DarkHelmetII wrote: Wed Jan 13, 2021 8:40 am What is the significance of the $500k? I assume this is something other than FDIC insurance?
FDIC insurance does not apply to brokerages.
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Keenobserver
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Re: Having more than $ 500k in brokerage (What to do)

Post by 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by Call_Me_Op »

Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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.
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gonefishing01
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Re: Having more than $ 500k in brokerage (What to do)

Post by gonefishing01 »

I wouldn’t keep 500k in Robinhood for long, personally. But not concerned about having 1M+ accounts with Vanguard, Schwab, Fidelity, etc.
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CardinalRule
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Re: Having more than $ 500k in brokerage (What to do)

Post by CardinalRule »

mptfan wrote: Wed Jan 13, 2021 9:13 am
DarkHelmetII wrote: Wed Jan 13, 2021 8:40 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by MikeG62 »

Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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.
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Keenobserver
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Re: Having more than $ 500k in brokerage (What to do)

Post by Keenobserver »

Call_Me_Op wrote: Wed Jan 13, 2021 9:19 am
Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by ChicagoBear7 »

Here is a consumer friendly summary of SIPC coverage.

https://www.sipc.org/for-investors/what-sipc-protects
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CardinalRule
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Re: Having more than $ 500k in brokerage (What to do)

Post by CardinalRule »

MikeG62 wrote: Wed Jan 13, 2021 9:26 am
Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by H-Town »

Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by Marseille07 »

H-Town wrote: Wed Jan 13, 2021 10:54 am
Keenobserver wrote: Wed Jan 13, 2021 8:31 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by jarjarM »

hi_there wrote: Wed Jan 13, 2021 11:52 am 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
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Re: Having more than $ 500k in brokerage (What to do)

Post by hi_there »

jarjarM wrote: Wed Jan 13, 2021 1:13 pm
hi_there wrote: Wed Jan 13, 2021 11:52 am 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
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TomatoTomahto
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Re: Having more than $ 500k in brokerage (What to do)

Post by 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.
I get the FI part but not the RE part of FIRE.
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