When should you open a second brokerage account elsewhere?

[teelainen]

Should you open a second brokerage account elsewhere when your current brokerage account reaches a certain value? If yes, what value should it be?

Is it $500k because of SPIC protection? Or do you recommend another amount?

Thanks.

[typical.investor]

Should you open a second brokerage account elsewhere when your current brokerage account reaches a certain value? If yes, what value should it be?

Is it $500k because of SPIC protection? Or do you recommend another amount?

Thanks.

$500k is the SIPC protection for missing assets, and it is per legal account type.

Understand that by regulation, brokers must keep your holdings separate from their assets. This is usually at a trust bank whose accountants are required by law to report if the bank doesn't actually have the assets the broker says it has there.

So in a bankruptcy, the broker should be able to simply return your assets to you by moving them to an account for you at another firm. That is what happened in the Lehman's failure which is the largest ever. SIPC coverage was not needed at all.

SIPC steps in for missing assets that were not where they should have been, and covers you up to the limit per legal account type. Since the typical bankruptcy has over a 95% recovery rate, you would on average have to have more than $10 million (or more if you have multiple account types) for SIPC to not cover your loss.

Then brokers may carry additional insurance. For example, Schwab carries an additional $600 million aggregate (for all customers combined) to cover missing assets that are not covered by SIPC. I also believe no investor has ever lost money in a brokerage bankruptcy where the broker carried additional insurance.

So in terms of a second broker, are you spending money out of your account for living expenses? At that point, you will want a second broker (or bank) in case you are the victim of attempted fraud and you can't access your money while they investigate. Or they might have tech issues and you don't want to wait a day or two to send/withdrawal some money. That's the major reason I think you might need a second broker. I use Schwab and Fidelity for that reason. I have found banks are quick to lower their interest rates and slow to do the opposite, and that money market type funds are quicker. And I also like the guarantee against unauthorized access that Schwab and Fidelity have. Reg E does protect banks for most ETF transfers but not for wires. So I think Schwab and Fidelity are safer.

[Parkinglotracer]

Should you open a second brokerage account elsewhere when your current brokerage account reaches a certain value? If yes, what value should it be?

Is it $500k because of SPIC protection? Or do you recommend another amount?

Thanks.

$500k is the SIPC protection for missing assets, and it is per legal account type.

Understand that by regulation, brokers must keep your holdings separate from their assets. This is usually at a trust bank whose accountants are required by law to report if the bank doesn't actually have the assets the broker says it has there.

So in a bankruptcy, the broker should be able to simply return your assets to you by moving them to an account for you at another firm. That is what happened in the Lehman's failure which is the largest ever. SIPC coverage was not needed at all.

SIPC steps in for missing assets that were not where they should have been, and covers you up to the limit per legal account type. Since the typical bankruptcy has over a 95% recovery rate, you would on average have to have more than $10 million (or more if you have multiple account types) for SIPC to not cover your loss.

Then brokers may carry additional insurance. For example, Schwab carries an additional $600 million aggregate (for all customers combined) to cover missing assets that are not covered by SIPC. I also believe no investor has ever lost money in a brokerage bankruptcy where the broker carried additional insurance.

So in terms of a second broker, are you spending money out of your account for living expenses? At that point, you will want a second broker (or bank) in case you are the victim of attempted fraud and you can't access your money while they investigate. Or they might have tech issues and you don't want to wait a day or two to send/withdrawal some money. That's the major reason I think you might need a second broker. I use Schwab and Fidelity for that reason. I have found banks are quick to lower their interest rates and slow to do the opposite, and that money market type funds are quicker. And I also like the guarantee against unauthorized access that Schwab and Fidelity have. Reg E does protect banks for most ETF transfers but not for wires. So I think Schwab and Fidelity are safer.

Could you expand on the differences re unauthorized access between vanguard, schwab, and fidelity?

[HomeStretch]

Edit - I have always used two brokerage accounts regardless of investment $ size.

In retirement I rely on monthly distributions to fund living expenses so access is a necessity. I use two brokerages just in case there is a an access issue with one due to a locked account, brokerage restrictions, etc.

[typical.investor]

$500k is the SIPC protection for missing assets, and it is per legal account type.

Understand that by regulation, brokers must keep your holdings separate from their assets. This is usually at a trust bank whose accountants are required by law to report if the bank doesn't actually have the assets the broker says it has there.

So in a bankruptcy, the broker should be able to simply return your assets to you by moving them to an account for you at another firm. That is what happened in the Lehman's failure which is the largest ever. SIPC coverage was not needed at all.

SIPC steps in for missing assets that were not where they should have been, and covers you up to the limit per legal account type. Since the typical bankruptcy has over a 95% recovery rate, you would on average have to have more than $10 million (or more if you have multiple account types) for SIPC to not cover your loss.

Then brokers may carry additional insurance. For example, Schwab carries an additional $600 million aggregate (for all customers combined) to cover missing assets that are not covered by SIPC. I also believe no investor has ever lost money in a brokerage bankruptcy where the broker carried additional insurance.

So in terms of a second broker, are you spending money out of your account for living expenses? At that point, you will want a second broker (or bank) in case you are the victim of attempted fraud and you can't access your money while they investigate. Or they might have tech issues and you don't want to wait a day or two to send/withdrawal some money. That's the major reason I think you might need a second broker. I use Schwab and Fidelity for that reason. I have found banks are quick to lower their interest rates and slow to do the opposite, and that money market type funds are quicker. And I also like the guarantee against unauthorized access that Schwab and Fidelity have. Reg E does protect banks for most ETF transfers but not for wires. So I think Schwab and Fidelity are safer.

Could you expand on the differences re unauthorized access between vanguard, schwab, and fidelity?

I think they all have decent guarantees and that all those three are better than a bank which may not guarantee against a fraudulent wire transfer if someone gained access to your account. You may have to lawyer up on that one. Additionally, it seems as if telephone-initiated transactions may not be covered under Reg E unless you have a written plan in place and I think I would need a lawyer to understand if my bank terms constitutes a written plan. I suspect not. Checks are not covered.

In any case, Reg E limits loss with timely notification. See https://www.consumerfinance.gov/rules-p ... /1005/6/#a I think brokerages are still bound by Reg E but their guarantees go above and beyond it.

As for those three Brokerages, all of them require you not to share your password and will consider any use of a shared password to be authorized. Some have additional requirements:

Vanguard:

* must have up-to-date antivirus and anti-spyware software and is protected by a firewall
* can't use a public computer unless you know it has the above
* can't store password or answers to security questions on the computer or device you use to access your Vanguard accounts
* must make sure answers to security questions are unique.
* can't open attachments in, or click links in emails that ask you for personal or financial information
* review the account-related information as soon as it is sent

Since I have a Mac with no antivirus and use a password manager, they could probably disqualify any claim. Also, I don't know their definition of a unique security question. If I really use my mother's maiden name, will they claim my brother does too and it's not unique. Anyway, there are others too.

https://investor.vanguard.com/ts/pdf/va ... -fraud.pdf

Fidelity:

* requires promptly reviewing correspondence, notices and account statements, or confirmations
* must use use of anti-virus software and personal firewalls
* must safely managing your personal information
* must using good online habits
* checks and debit cards are not covered and instead go through the issuing bank under Regulation E. (tell Fidelity directly about bad checks but then it goes through the issuing bank).

https://www.fidelity.com/accounts/servi ... %20account.

Schwab:

* report transactions as quickly as possible. The brokerage agreement states within 10 days of notification.
* Schwab Bank transactions ARE covered

https://www.schwab.com/schwabsafe/secur ... nformation.

Overall, it seems Schwab has the fewest hurdles that might trip you up or delay an investigation, and has the most comprehensive coverage. I am not sure if Vanguard covers checks. None of them cover annuities or 529 plans.

Do see the exact terms as I am just summarizing what I see as the most important.

[Marq1]

only when you want to add complexity to your life

[typical.investor]

only when you want to add complexity to your life

Of course if you have all your money at Fidelity (or any brokerage but Fidelity is notoriously fickle) and their hair trigger fraud detection locks your account and they won't give you any timeline for resolution to your account being locked, then having another account you can spend out of will be actually less complexity. Or if you need to access money and the site is down ...

You could use a bank, but big brokerages typically offer better protection for unauthorized transactions (especially wires).